' 


I 


. 


>  • 


4 


By  the  Same  Author. 


INTRODUCTION 

TO 

POLITICAL  ECONOMY. 


Third  Edition.  12mo.  Price  $1.25. 


POLITICAL  ECONOMY 


BY 


ARTHUR  LATHAM  PERRY,  LL.D. 

ORRIN  SAGE  PROFESSOR  OF  HISTORY  AND  POLITICAL  ECONOMY  IN 

WILLIAMS  COLLEGE 


Quid  pro  quo.  Sibi  totique 


TWENTIETH  EDITION 


NEW  YORK 

CHARLES  SCRIBNER’S  SONS 

1888 

BOSTON  COLLEGE  LIBRARY 
L'  \ CHESTNUT  HILL,  MASS, 


Copyright,  1873,  1883,  by 
ARTHUR  LATHAM  PERRY, 


FRANKLIN  PRESS  J 
RAND,  AVERY,  AND  COMPANY, 
BOSTON. 


TO 


THESE  FEW  AMONG  MANY, 


MY  BELOVED  AND  HONORED  CO-WORKERS  IN  A  FIELD 
WORTHY  THE  BEST  THOUGHTS  OF 
THE  BEST  MEN: 


JOHN  BASCOM,  FRANCIS  A.  WALKER, 
DAVID  A.  WELLS,  WILLIAM  G.  SUMNER. 


PEEFAOE. 


As  the  human  body  continues  to  be  the  same  body 
throughout  all  the  changes  of  its  growth  and  mature  life, 
so  the  book  now  in  the  hands  of  the  reader  has  continued 
the  same  book  as  the  one  first  published  in  the  late  autumn 
of  1865.  This,  too,  in  the  mean  time  has  grown  in  size,  in 
symmetry,  and  in  maturity  of  thought  and  expression ;  it 
has  been  carefully  revised,  and  in  large  parts  rewritten 
once  and  again  and  again  ;  now  at  length  it  has  been  recast 
throughout  for  new  plates,  so  that  probably  there  are  not 
now  three  consecutive  pages  standing  just  as  they  stood 
in  that  original  edition ;  also  the  book  appears  at  present 
with  a  new  and  simpler  title,  “  Political  Economy,”  in  order 
that  it  may  be  more  easily  distinguished  from,  and  brought 
otherwise  into  better  harmony  with,  my  smaller  book  entitled 
“Introduction  to  Political  Economy;”  and  the  number 
of  the  chapters  (constant  till  now)  has  been  diminished 
from  sixteen  to  fourteen,  in  order  to  allow  a  fuller  devel¬ 
opment  of  the  more  essential  portions  of  the  great  subject. 
But  it  is  the  same  book  still.  In  substance  of  doctrine,  in 
nomenclature  for  the  most  part,  in  scientific  divisions  and 
sequences,  in  studied  clearness  of  statement  on  every  page, 
in  the  frequency  and  fulness  of  current  and  historical  illus¬ 
trations  of  principles,  and  in  the  strong  and  steady  drift 

vii 


Vlll 


PREFACE . 


against  all  needless  restrictions  on  trade,  —  it  is  the  same 
book  still.  Excrescences  have  been  cut  off,  crudities 
ripened,  and  the  whole  fibre  made  tougher  and  more  com¬ 
pact,  but  the  continuity  of  life  has  been  constantly  conserved. 

I  had  taught  Political  Economy  in  this  Institution  for  ten 
or  twelve  years  without  ever  forming  any  purpose  to  try 
my  hand  at  a  treatise  on  the  subject.  I  had  used  for  my 
teachers  and  guides  the  English  writers,  particularly  Adam 
Smith,  Ricardo,  Senior,  and  Mill ;  and  familiarized  myself 
also  with  the  American  writers,  particularly  Carey,  Way- 
land,  Bowen,  and  Bascom.  Almost  from  the  outset  of  my 
studies,  however,  and  increasingly  as  the  years  went  by,  I 
kept  asking  myself,  “  What  is  Political  Economy  about  ?’  ’ 
“  Within  what  precise  field  do  its  inquiries  lie?* 9  “ Is  it  pos¬ 
sible  clearly  and  simply  to  circumscribe  that  field  ?”  I  could 
see  no  solid  reason  why  economical  discussions  should  be 
confined  to  tangible  commodities,  and  not  include  as  well 
personal  services  rendered  for  pay,  and  also  credits  of  all 
kinds.  I  could  not  gain  from  the  general  terms  used  by 
the  writers  a  firm  conception  of  the  science  as  including 
these  three  classes  of  things.  The  word  “Wealth,”  which 
figured  so  largely  in  all  the  books,  gave  no  satisfaction  in 
this  regard,  for  this  best  of  reasons,  that  I  never  could  gain 
with  all  my  strivings  a  clear  and  generalized  conception  of 
just  what  that  word  covered.  I  found  besides,  that  no  two 
of  the  writers  had  the  same  notion  of  the  meaning  of  that 
word,  and  that  no  one  of  them  all  had  given  an  adequate 
and  self-consistent  definition  of  it.  I  talked  this  matter 
over  repeatedly  with  Professor  Bascom,  at  that  time  my 
colleague  and  always  my  friend,  and  suggested  to  him  a 
way  of  egress  from  the  difficulty  ;  and  my  mind  had  almost 


PBEFACE. 


IX 


readied  the  conclusion  in  which  it  has  now  rested  for  many 
years  with  perfect  composure,  when  my  late  friend,  Amasa 
Walker,  who  was  even  then  a  political  economist  of  reputa¬ 
tion,  though  he  had  not  yet  published  his  “  Science  of 
Wealth,’ ’  recommended  to  me  Bastiat’s  “  Harmonies  of 
Political  Economy.”  I  had  scarcely  read  a  dozen  pages  in 
that  remarkable  book,  when  the  Field  of  the  Science,  in  all 
its  outlines  and  landmarks,  lay  before  my  mind  just  as  it  does 
to-day.  I  do  not  know  how  much  I  brought  to  that  result, 
and  how  much  towards  it  was  derived  from  Bastiat.  I  only 
know,  that  from  that  time  Political  Economy  has  been  to 
me  a  new  science ;  and  that  I  experienced  then  and  there¬ 
after  a  sense  of  having  found  something ,  and  the  cognate 
sense  of  having  something  of  my  own  to  say. 

It  is  a  pleasure  to  acknowledge  in  ample  terms  one’s  in¬ 
debtedness  to  such  a  quickening  writer  as  Bastiat  is,  and 
whoever  will  compare  carefully  with  his. book  the  following 
chapters  on  Value  and  Land  will  see  that  I  have  profited 
much  by  his  discussions,  and  he  will  also  see  that  I  have 
made  an  entirely  independent  use  of  them.  The  scheme  of 
my  book  is  wholly  my  own.  I  do  not  fear  to  claim,  that, 
owing  to  their  present  setting,  even  the  points  derived  from 
Bastiat  appear  in  a  new  light  and  in  broader  relations,  and 
that  the  scientific  connections  of  Utility  with  Value  are  more 
clearly  and  ultimately  put  than  he  put  them.  An  uncom- 
monly  competent  critic  (see  The  Nation ,  II.  146)  conceded 
on  the  appearance  of  the  first  edition  of  this  book,  that 
original  light  was  thrown  by  it  on  the  vexed  questions  of 
Land  ]  and  I  even  dare  to  hope,  that,  in  the  chapter  as  it 
stands  at  present,  some  scientific  contribution  may  be  found 
towards  the  solution  of  the  problem,  which  has  tried  the 


X 


PREFACE. 


British  Government  these  late  years  more  than  any  other. 
Besides,  Bastiat,  with  all  the  rest,  still  clung  to  the  bad  word 
“  Wealth  ;  ”  and  in  my  estimation,  there  could  be  no  better 
proof  that  that  word  is  a  veritable  “  slough  of  Despond,’ ’ 
than  that  the  far-seeing  and  firm-stepping  Bastiat  certainly 
floundered  in  it.  Then,  too,  I  thought  I  could  make  no 
better  acknowledgment  for  help  received  in  those  parts  of  my 
book,  than  to  try  my  best  in  all  the  other  parts  to  execute 
the  commission  which  Bastiat  left  to  his  readers  in  these 
words :  u  I  hope  yet  to  find  at  least  one  among  them  who  will 
he  able  to  demonstrate  rigorously  this  proposition :  the  good 
of  each  tends  to  the  good  of  all ,  as  the  good  of  all  tends  to 
the  good  of  each;  and  who  will ,  moreover,  he  able  to  impress 
this  truth  upon  men's  minds  hy  rendering  the  proof  of  it 
simple ,  lucid ,  and  irrefragable .” 

The  most  of  what  is  original  in  my  book  is  an  immediate 
or  else  an  indirect  result  of  absolutely  dropping  from  the 
start  the  use  of  the  word  “wealth”  as  a  technical  term. 
So  far  as  I  know,  I  was  the  very  first  economist  to  do  this ; 
and  this  change,  which  seems  at  first  to  be  but  a  small  one, 
is  really  a  great  one,  insomuch  as  it  made  necessary  an 
entire  reconstruction  of  the  form  of  the  science  as  I  had 
found  it.  The  books  in  effect,  and  most  of  them  in  form, 
gave  as  the  subject  of  the  science,  the  Production,  Distribu¬ 
tion,  and  Consumption  of  Wealth,  and  the  primary  divisions 
within  the  treatises  turned  for  the  most  part  on  this  phrase  ; 
but  the  phrase  implies  that  “wealth”  is  a  concrete  thing, 
something  that  may  be  produced  and  distributed  and  con¬ 
sumed,  that  is  to  say,  Commodities  only,  while  the  writers 
all  conceded  that  purchasing-power,  or  Value,  resides  in 
personal  Services  and  in  Credits  also.  It  follows  accord- 


PREFACE. 


Xl 


ingly,  that  the  true  subject  of  the  science  is  Value ,  in  which¬ 
ever  of  the  three  forms  it  manifests  itself ;  and  in  this  simple 
presence,  the  old  divisions  fell  out  of  themselves,  and  the 
word  “wealth”  dropped  out  of  course  as  both  a  useless 
and  a  confusing  term.  In  devising  a  new  scheme,  accord¬ 
ingly,  and  in  elaborating  that,  most  that  is  new  in  this  booh 
came  to  the  surface  and  easily  found  its  appropriate  place. 

The  three  historical  chapters  of  the  book  have  cost  me 
first  and  last  wide  research,  and  very  great  labor.  In 
sketching  the  history  of  the  United  States  Tariffs  for  the 
earlier  editions,  I  had  not  before  me  the  tracks  of  a  solitary 
pioneer.  Benton’s  Debates,  the  annual  and  special  Mes¬ 
sages  of  the  Presidents,  and  the  published  Speeches  of  the 
leading  statesmen,  were  my  principal  sources.  Hildreth’s 
History  of  the  United  States  gave  me  some  aid  in  relation 
to  the  Hamilton  and  Calhoun  Tariffs.  It  has  been  a  per¬ 
sonal  gratification  that  the  designations  originally  given  to 
the  successive  tariff-acts  in  this  chapter  have  been  widely 
adopted,  not  only  in  books  and  pamphlets,  but  also  in 
speeches  on  the  floor  of  Congress.  More  recently,  several 
able  men  have  usefully  busied  themselves  more  or  less  with 
our  tariff  legislation,  and  thus  have  helped  to  put  this  chapter 
into  fuller  and  better  shape,  particularly  my  friends,  Wells 
and  Sumner  and  Philpott,  and  also  the  new  historian, 
Schouler.  Nor  was  there  any  one  who  preceded  me  in 
attempting  to  give  a  history  of  Money  in  the  United  States. 
The  materials  for  that  chapter  came  from  widely  scattered 
quarters.  Since  then,  Sumner  and  Walker  and  Bolles  and 
Richardson,  and  others,  have  illustrated  large  portions  of 
the  subject,  and  my  chapter  has  profited  by  their  fresh  re¬ 
searches.  J.  R.  McCulloch  prefixed  to  his  edition  of  Adam 


PREFACE. 


•  • 

Xll 

Smith,  published  in  1853,  a  carefully  written  “Introduc¬ 
tory  Discourse,”  which  was  intended  as  a  succinct  history 
of  the  Science  up  to  that  time ;  but  his  strong  prejudices 
against  the  French  and  other  foreign  writers,  and  his  unwill¬ 
ingness  to  concede  that  anybody  had  really  contributed 
any  thing  to  Political  Economy  except  his  own  countrymen, 
make  the  essay  at  once  incomplete  and  misleading.  The 
article  “Political  Economy”  in  the  second  edition  of  the 
American  Cyclopedia  of  Ripley  and  Dana  is  very  full,  very 
learned,  and  means  to  be  very  fair  to  all  sides ;  but  the 
obvious  bias  of  its  author  towards  Carey  and  the  Pennsyl¬ 
vania  knot  of  economists  hinders  it  from  becoming  a  wholly 
satisfactory  presentation.  I  do  not  expect  that  my  introduc¬ 
tory  chapter  on  the  History  of  the  Science  will  meet  the  views 
of  all  my  readers,  but  this  at  least  can  be  truthfully  said  for 
it,  that  no  pains  have  been  spared  to  make  it  accurate  and 
proportionate  and  unprejudiced,  and  that  the  largest  part 
of  all  the  quotations  taken  in  it  were  made  at  first  hand. 

The  late  President  Garfield,  who  was  a  pupil  and  life-long 
friend  of  mine,  was  fond  of  making  the  remark,  that,  with 
the  exception  of  the  Constitutional  argument  against  ‘ 4  Pro¬ 
tection,”  all  the  points  since  urged  for  and  against  that 
system  were  brought  out  in  the  first  congressional  tariff 
debate  in  the  summer  of  1789.  The  remark  is  acute  and 
significant,  but  it  is  not  exact  to  its  entire  extent.  The 
points  laised  in  the  tariff  debate  of  that  year,  and  in  the 
tariff  debates  of  the  next  sixty  years,  so  far  as  these  were 
epitomized  and  published  by  the  indefatigable  Senator 
Benton,  contain  only  a  remote  allusion  or  two  to  the  argu¬ 
ment  for  Free  Trade  emphasized  and  iterated  in  many 
forms  throughout  these  pages,  namely,  that,  if  a  nation 


PREFACE. 


xiii 


will  not  buy  of  foreigners  it  can  not  sell  to  them.  This  is 
the,  universal  and  fundamental  objection  to  “protection” 
so-called,  that,  if  legal  barriers  keep  out  a  dollar’s  worth  of 
foreign  goods  which  want  to  come  in,  they  thereby  and 
necessarily  keep  in  a  dollar’s  worth  of  domestic  goods  which 
want  to  go  out.  The  points  made  in  this  book  against  arti¬ 
ficial  restrictions  on  trade  are  in  no  sense  whatever  a  repro¬ 
duction  of  English  arguments ;  they  come,  most  of  them, 
from  the  simple  and  indisputable  principle  just  enunciated ; 
and  most  of  the  rest  have  come  from  the  answers  given 
from  time  to  time  to  objections  raised  by  doubting  students 
in  my  own  lecture-room. 

Two  or  three  editions  of  the  present  treatise  had  been 
issued  before  I  had  seen  any  of  the  books  of  Henry  Dunning 
Macleod.  Many  references  to  these  books  and  to  their 
gifted  author  will  be  found  in  the  present  text.  The  points 
of  our  independent  coincidence  were  many,  the  points  of 
our  decided  divergence  are  confined  mostly  to  the  nature 
of  Money,  and  I  wish  here  to  express  in  general  my  sense  of 
obligation  to  him  for  much  information  in  matters  of  fact 
and  for  some  distinctions  in  matters  of  science.  In  the  first 
volume  of  his  “Principles  of  Economical  Philosophy,”  he 
has  done  me  the  great  honor  to  associate  my  name  with 
Condillac,  Whately,  Bastiat,  and  Chevalier,  —  the  heads  of 
the  third  great  school  of  Political  Economy.  His  own  name 
is  more  worthy  than  mine,  and  more  likely  than  mine,  to 
stand  permanently  in  that  distinguished  list. 

Every  writer  who  is  both  competent  and  earnest  puts  his 
readers  under  obligations  of  some  sort,  whether  they  agree 
with  him  or  not,  and  I  desire  to  acknowledge  my  own  in  a 
general  way  to  a  great  variety  of  economical  and  historical 


XIV 


PREFACE. 


writers,  whom  I  cannot  here  name  in  detail,  but  to  most 
of  whom  more  or  less  reference  is  made  in  the  following 
pages. 

I  cannot  conclude  this  preface  without  expressing  my 
sense  of  indebtedness  to  the  successive  classes  of  intelligent 
young  men,  to  whom  I  have  presented,  and  with  whom  I 
have  discussed,  now  for  more  than  thirty  years,  the  facts 
and  principles  of  this  fascinating  science.  It  seems  to  me 
as  if  every  possible  objection  to  the  leading  points  in  this 
book  has  been  raised  at  one  time  or  another  by  members 
of  my  own  classes.  Sometimes  I  have  been  convicted  of 
error  in  minor  things,  and  many  times  been  fortified  in  the 
truth,  through  attempts  to  remove  objections  started  thus 
by  students ;  and  I  deem  it  of  the  greatest  advantage  to 
any  political  economist,  —  an  advantage  to  which  Adam 
Smith  himself  was  much  indebted,  —  to  have  the  oppor¬ 
tunity  to  test  views  and  theories  over  and  over  again  in  the 
presence  of  fresh  and  bright  minds.  It  has  not  infre¬ 
quently  happened  in  my  experience  that  new  light  has  been 
thrown  out  upon  a  subject  by  a  young  man  just  grasping 
the  thought  for  the  first  time. 

A.  L.  P. 

Williams  College,  June  17, 1883. 


TABLE  OF  CONTENTS. 


CHAPTER  I. 

PA6B 

History  of  the  Science . .  .  .  1 

CHAPTER  IL 

Field  of  the  Science . 89 

CHAPTER  III. 

Value . 117 

CHAPTER  IV. 

Production . 1G5 

CHAPTER  V. 

Labor . 203 

ft 

CHAPTER  VI. 

Capital . 251 

xv 


XY1 


TABLE  OF  CONTENTS. 


CHAPTER  VII. 

PAGE 

Land . 274 

< 

CHAPTER  VIII. 

Cost  of  Production . 300 

CHAPTER  IX. 

Money . 314 

CHAPTER  X. 

Money  in  the  United  States . 377 

CHAPTER  XI. 

Credit . 413 

CHAPTER  XII. 

Foreign  Trade . 461 

CHAPTER  XIII. 

United  States  Tariffs . 534 


CHAPTER  XIV. 


Taxation 


581 


POLITICAL 


ECONOMY. 


♦ 


CHAPTER  I. 

HISTORY  OF  THE  SCIENCE. 

Sciences  are  not  formed  all  at  once,  but  they  grow.  As 
a  rule,  the}T  come  slowly  to  their  exact  definition,  and  then 
the  just  outline  itself  is  but  slowly  filled  up.  Many  men 
in  many  lands  give  thought  and  work  to  the  matter  in  hand, 
till  at  length  a  science  stands  forth  to  view,  it  may  be  in  full 
outline  if  not  yet  in  perfect  form.  “Here  a  little  and 
there  a  little  ’  ’  is  as  much  the  rule  in  the  unfolding  of 
sciences  as  it  is  in  the  revelations  of  God. 

So  it  has  been  with  Political  Economy.  The  subject- 
matter  of  this  science  is  Buying  and  Selling ;  but  while 
men  have  been  buying  and  selling  ever  since  there  were 
men  on  the  earth ;  and,  what  is  more,  while  by  much  the 
largest  part  of  human  actions  has  been  put  forth  to  this 
very  end,  and  too  a  larger  and  still  larger  part  always  as  the 
world  has  gained  in  age  and  unity ;  and  while  the  thoughts 
of  certain  men  have  been  given  more  or  less  from  the  first 
onwards  to  the  several  things  that  make  up  the  science  as 
a  whole ;  still,  even  the  exact  definition  of  it  was  only 
reached  a  little  more  than  a  century  ago,  and  the  form  and 
filling  up  of  it  are  by  no  means  yet  so  perfect  as  they  will 
become  in  the  future. 


1 


2 


POLITICAL  ECONOMY . 


The  opening  chapter  of  a  book  like  this  will  fitly  trace 
in  brief  the  thoughts  that  men  have  had  in  the  past  on  all 
this  matter  of  trade,  as  a  mere  means  to  prepare  its  readers 
for  the  thoughts  that  they  should  have  on  the  same  subject- 
matter.  It  would  indeed  be  wrong  to  begin  a  treatise  like 
the  present  with  critical  estimates  of  past  systems,  and  witli 
minute  attempts  to  adjust  to  each  great  thinker  his  own 
meed  of  praise  for  what  he  has  added  to  the  common  stock ; 
but  the  beginners  in  a  science  as  well  as  its  riper  students 
interest  themselves  easily  in  its  history,  and  seem  to  come 
more  readily  to  thorough  discussion  and  ultimate  conclusion 
along  the  roadway  roughly  wrought  b}T  those  who  have  gone 
before.  The  pioneers  prepare  the  way  for  the  permanent 
settlers  ;  the  advanced  guard  clears  the  road  for  the  whole 
army ;  and,  in  this  science  particular!}^,  the  beginner  learns 
from  its  past  record  in  general  what  it  is  about,  how  vast  its 
field,  how  vital  its  importance,  how  errors  in  thought  have 
led  to  mistakes  in  practice,  how  grand  a  thing  is  freedom  of 
industry,  how  debasing  to  mind  and  body  is  its  opposite, 
how  peace  and  good  neighborhood  are  blessed,  how  the  world 
is  one  and  God  is  good,  and  then  he  comes  perhaps  with 
zest  and  certainly  with  insight  to  definitions  and  to  princi¬ 
ples,  to  dry  details  and  scientific  reasonings.  In  short, 
somewhat  as  the  boy  at  play  runs  back  a  little  before  he 
makes  his  longest  leap,  it  will  be  well  and  orderly  to  trace 
the  steps  already  trod  in  economics  before  we  try  to  make 
our  own. 

1.  The  sun  rises  always  in  the  east.  To  the  Orient,  then, 
must  we  look  for  the  first  streaks  of  light  that  reach  our 
theme.  It  is  plain,  that  buying  and  selling  can  go  but  a 
very  little  way  without  the  aid  of  weights  and  measures ; 
and  the  origin  of  these  has  always  been  ascribed  to  the 
dwellers  on  the  plains  of  the  Euphrates  and  Tigris.  Chaldea 
on  the  lower  courses  of  these  streams,  and  Babylonia  and 
Nineveh  on  their  more  northern  reaches,  were  in  this  view 
but  one  country.  Chaldea  seems  to  have  been  the  parent 


HISTORY  OF  TnE  SCIENCE. 


3 


land  of  arithmetic  and  astronomy  ; 1  the  Babylonians  made 
out  a  catalogue  of  the  fixed  stars,  of  which  the  Greeks 
afterwards  made  practical  use ;  the  same  people  invented 
the  sun-dial  to  measure  time  during  the  day,  and  the  water- 
clock  to  measure  it  during  the  night,  and  by  these  and  other 
means  they  fixed  the  true  length  of  the  solar  day,  and  came 
to  know  as  well  as  we  do  that  the  solar  year  is  3G5£  days 
nearly  ;  and  they  watched  the  changes  of  the  moon  so  closely 
as  to  learn  that  there  are  12  (almost)  lunar  periods  in  the 
solar  year,  which  is  beyond  doubt  the  origin  of  the  duodeci¬ 
mal  system  in  numbers,  as  a  man’s  ten  fingers  are  the  origin 
of  the  decimal  system,  and  each  of  these  outward  facts  may 
have  suggested  the  fertile  conception  of  a  unit  composed  of 
a  number  of  equal  units. 

It  is  pretty  clear  that  the  Babylonians  knew  both  the 
decimal  and  duodecimal  systems,  because  they  seem  to  have 
joined  the  two  in  their  own  sexagesimal  system.  For  prac¬ 
tical  purposes  they  counted  by  60,  which  is  just  one-half 
the  product  of  10  and  12,  perhaps  because  the  whole  prod¬ 
uct  was  too  large  a  unit.  They  called  GO  the  sossos,  and 
its  square,  3G00,  the  saros ,  and  reckoned  time  by  both 
of  these.  Our  hour  has  GO  minutes,  and  our  minute  GO 
seconds,  simply  because  that  old  people  so  divided  them. 
Day  and  night  have  each  12  hours,  because  that  old  people 
watched  the  moon.  Hipparchus,  a  Greek  astronomer,  who 
lived  in  the  second  century  before  Christ,  took  all  these 
points  from  them,  and  also  the  same  numeral  system  to 
measure  the  old  earth  by,  and  thus  he  put  GO  minutes  to  a 
degree,  and  3G0  degrees  to  the  earth’s  circle. 

These  ideas  of  length  and  measure,  gained  partly  thus 
from  things  above  and  partly  also  from  things  below,  as  the 
length,  for  example,  of  the  human  foot  gives  one  standard 
(/oof),  and  the  weight  a  man  can  poise  in  his  hand  with 
outstretched  arm  another  (pound),  were  gradually  applied 

1  “Chaldaei  cognitione  astrorum  sollertiaque  ingeniorum  antecellunt.” 

Cic.  de  Div.  1.  41. 


4 


POLITICAL  ECONOMY. 


by  these  ingenious  people  to  surfaces  and  capacities  and 
weights,  and  definite  standards  of  these  were  devised,  with¬ 
out  which  any  considerable  traffic  between  man  and  man  is 
impossible.  The  Greeks  owned  that  the}-  learned  from 
the  Babylonians  the  art  of  dividing  gold  and  silver  for  the 
purposes  of  trade  ;  and  the  same  people  grappled  for  the  first 
time  with  the  still  hard  problem  of  the  value  of  gold  to 
silver  each  to  each,  and  settled  it  then  and  there  in  the  ratio 
of  1  to  lo-J.  At  first  and  for  a  long  time  in  the  oriental 
lands,  and  borrowed  thence  in  the  classical  lands  as  well, 
were  the  standard  weight  and  the  standard  coin  the  same  in 
name  and  partly  also  in  use,  and  these,  with  the  cognate 
standards  of  surface  and  capacity,  being  now  supplied, 
trade  took  on  a  new  form  and  grew  great.  Bab}donian 
bricks  burnt  more  than  2000  years  before  Christ  disclose  to 
us  that  houses  and  lands  were  then  sold  and  leased  and 
mortgaged ;  that  money  was  loaned  on  interest ;  and  that 
the  market-gardeners  worked  on  shares.  Indeed  the  Baby¬ 
lonian  mina ,  whose  very  name  even  was  borrowed  both  by 
the  Greeks  and  Romans,  controlled  in  substance  theii 
weights  and  coins,  and  thus  influenced  the  English  sover¬ 
eign  and  its  subdivisions.1 

Good  proof  meets  us  that  cloths  and  carpets  and  coins  and 
other  goods  went  out  in  trade  from  the  valley  of  the  Euphra¬ 
tes  at  a  very  early  day  to  the  countries  to  the  westward,  of 
course  only  to  bring  back  in  pay  the  products  of  those  coun¬ 
tries.  The  “  goodly  Babylonish  garment  ”  coveted  by  Achan 
in  Palestine  (Josh.  vii.  21)  perhaps  1G00  years  B.C.  ;  the 
word  of  one  prophet  who  speaks  of  Babylon  as  “  a  city  of 
merchants  ”  (Ezek.  xvii.  4) ,  and  of  another  who  speaks  of  the 
“Chaldeans  and  the  ships  of  their  delight  ”  (Is.  xliii.  14), 
and  of  still  another  who  says  of  Nineveh  “Thy  merchants 
have  been  more  numerous  than  the  stars  of  heaven”  (Nah. 

1  Rawlinson’s  Ancient  Monarchies,  I.  102,  II.  570,  III.  15;  Mommsen’s  Roman 
History,  I.  272,11.  448;  Max  Miiller  in  Contemporary  Review;  and  Chief  Justice 
Daly  before  the  Geographical  Society. 


ms  TORY  OF  THE  SCIENCE. 


5 


iii.  16)  ;  and  the  many  notices  in  the  classical  writers  of  the 
exports  and  imports,  the  grains  and  fruits,  of  these  earliest 
of  civilized  men  ;  —  all  this  goes  to  show  that  the  bulk  of 
their  lives  was  given  to  traffic,  and  that  the  fame  of  their 
works  was  in  all  lands. 

If  we  come  nearer  to  the  western  sea,  facts  of  the  same 
sort  meet  us  on  every  hand.  Damascus  is  so  old  a  city  that 
no  one  dares  to  tell  its  age,  and  yet  its  very  name  means  “  a 
seat  of  trade.”  We  read  that  Abraham,  about  2000  years 
before  Christ,  went  up  out  of  Egypt  “  very  rich  in  cattle,  in 
silver,  and  in  gold  ;  ”  and  the  formal  sale  to  him  in  Hebron 
of  the  cave  and  the  held  is  full  of  signs  of  the  drift  of  those 
times.  It  was  “  in  the  audience  of  the  sons  of  Ileth,  before 
all  that  went  in  at  the  gate  of  his  city,  that  the  field  and  the 
cave  were  made  sure  unto  him  for  a  possession.  And  Abra¬ 
ham  weighed  unto  Ephron  the  silver  which  he  had  named  in 
the  audience  of  the  sons  of  Ileth,  four  hundred  shekels  of 
silver,  current  money  with  the  merchant.”  Let  us  note, 
that  here  are  “  merchants  ”  as  a  class,  that  silver  by  weight 
passes  as  “money”  from  hand  to  hand,  and  that  in  the 
lack  of  written  deeds  (as  we  have  them)  sales  were  “made 
sure  ”  before  the  faces  of  living  men  who  would  tell  the 
truth  and  pass  on  the  word.  Abraham  seems  to  have 
given  the  pitch  for  the  song  of  trade  sung  by  the  Jews 
from  that  time  to  this ;  for  his  grandson,  Jacob,  was  a 
skilled  trafficker,  not  to  say  a  secret  trickster,  in  his  bar¬ 
gains  ;  and  wherever  in  the  Old  World  or  the  New  there  have 
been  Jews,  there  have  been  in  fact  and  in  fame  buyers  and 
sellers.  The  wrord  of  God  in  no  place  calls  fair  sales  wrong, 
but  on  the  other  hand  blames  alike  the  son  who  wasted  his 
own  goods,  and  the  servant  who  let  lie  idle  his  lord’s  money ; 
and  our  Lord  himself  and  those  with  him,  though  He  drove 
the  money-changers  from  the  temple  as  an  unfit  place  for 
their  trade,  bought  with  the  coin  borne  in  a  bag  their  daily 
bread. 

The  man  who  wrote  the  book  of  Job  knew  well  the  way  in 


6 


POLITICAL  ECONOMY. 


which  the  ancient  mines  were  wrought,  and  the  worth  of  the 
ores :  — 

“  Truly  tliere  is  a  vein  for  silver, 

And  a  place  for  gold,  which  men  refine. 

Iron  is  obtained  from  earth, 

And  stone  is  melted  into  copper. 

Man  putteth  an  end  to  darkness; 

He  searclieth  to  the  lowest  depths 

For  the  stone  of  darkness  and  the  shadow  of  death. 

From  the  place  where  they  dwell  they  open  a  shaft; 
Forgotten  by  the  feet, 

They  hang  down,  they  swing  away  from  men. 

The  earth,  out  of  which  cometh  bread, 

Is  torn  up  underneath,  as  it  were  by  fire. 

Her  stones  are  the  place  of  sapphires, 

And  she  hath  clods  of  gold  for  man. 

The  path  thereto  no  bird  knoweth, 

And  the  vulture’s  eye  hath  not  seen  it; 

The  fierce  wild  beast  hath  not  trodden  it; 

The  lion  hath  not  passed  over  it. 

Man  layeth  his  hand  upon  the  rock; 

He  upturneth  mountains  from  their  roots; 

He  cleavetli  out  streams  in  the  rocks, 

And  his  eye  seetli  every  precious  thing; 

He  bindetli  up  the  streams,  that  they  trickle  not, 

And  bringeth  hidden  things  to  light.”  1 

The  27th  chapter  of  Ezekiel  gives  a  vivid  picture  of  the 
immense  commerce  centring  in  the  city  of  Tyre.  That  was 
a  home  of  ships,  and  a  home  of  the  arts.  “All  the  ships 
of  the  sea  with  their  mariners  were  in  thee  to  traffic  in  thy 
merchandise.”  “Many  islands  were  at  hand  to  thee  for 
trade.”  “With  silver,  iron,  tin,  and  lead,  they  traded  in 
thy  fairs.”  “  They  brought  thee  for  payment  horns  of  ivory 
and  ebony-wood.”  Among  the  articles  besides  these  ex¬ 
changed  in  that  market  are  mentioned  horses  and  mules  and 
lambs  and  rams  and  goats,  wine  of  Helbon  and  white  wool, 
fine  linen  and  embroidered  work  and  riding  cloths  and  man¬ 
tles  of  blue  and  chests  of  damask  and  thread,  wheat  and 

1  Dr.  Noyes’s  translation. 


HISTORY  OF  THE  SCIENCE. 


i 


pastry  and  simp  and  oil  and  balm,  precious  spices  and  cassia 
and  sweet  reed,  and  gold  and  carbuncles  and  corals  and  rubies.1 
These  old  Phoenicians  of  Tyre  colonized  Carthage,  and  thus 
bore  a  vast  trade  to  the  west,  going  by  land  into  the  heart  of 
Africa  for  dates  and  salt  and  gold-dust  and  slaves,  and  by 
sea  through  the  pillars  of  Hercules  northward  to  the  British 
Isles  for  the  sake  of  the  trade  in  tin.  With  this  agrees  a 
dim  tradition  of  the  Celtic  Irish  that  their  land  was  first  civ¬ 
ilized  by  Plienians ,  and  these  were  without  doubt  the  Phoe¬ 
nician  traders,  who,  though  they  dwelt  at  Carthage,  took  their 
name  from  their  native  shore.  They  were  great  miners  also 
both  in  the  East  and  the  West.  (Herod,  vii.  112.) 

So  far  as  it  appears,  the  Persians  were  the  only  Orientals 
who  scorned  to  buy  and  sell,  —  to  soil  their  hands  with  work 
to  that  end,  — and  the  evident  surprise  of  the  Greek  writers 
at  this  as  at  a  strange  thing  shows  that  these  people  were  in 
this  respect  in  strong  contrast  with  their  neighbors.  With 
this  exception,  there  is  no  sign  of  any  sense  among  the  Ori¬ 
entals  that  exchange  of  goods  is  otherwise  than  beneficial, 
and  no  sign  of  any  effort  to  stop  or  hinder  such  exchange ; 
nor,  on  the  other  hand,  is  there  any  sign  that  any  deep 
thought  was  given  to  the  nature  of  exchanges,  or  the  reason 
of  the  benefits  they  confer.  All  the  men  of  the  east,  too, 
bought  and  sold  slaves,  which  is  wrong  even  in  the  eye  of 
traffic,  since  it  denies  the  native  right  of  those  who  are  slaves 
to  buy  and  sell,  and  thus  makes  good  trade  less  than  it  would 
be,  and  besides  tends  to  bring  labor ,  which  lies  at  the  root 
of  trade,  into  shame. 

2.  The  Greeks,  who  had  better  minds  than  the  Orientals, 
seem  to  have  been  the  first  to  look  into  the  nature  of  trade, 
and  thus  were  able  to  find  out  some  of  the  germs  of  our 
science.  Nearly  every  Greek  writer  throws  some  light  either 
upon  the  facts  of  their  exchanges,  or  upon  theft  thoughts  in 


1  Under  the  other  name  of  Tyre,  Sara,  the  Latin  poets  refer  to  some  of  the  same 
things  with  the  prophet :  —  for  example,  l’lautus,  — “  purpuram  ex  Sara  attuli;  ”  and 
Virgil,  —  “  Ut  gemma  bibat,  ct  Sarrano  dormiat  ostro.” 


8 


POLITICAL  ECONOMY. 


relation  to  them.  Homer  in  the  Iliad  and  Odyssey  gives  a 
full  picture  of  the  heroic  age ;  and  while  it  is  almost  sure 
proof  that  no  such  thing  as  money  was  in  common  use  at 
that  time,  that  he  makes  no  mention  of  it,  there  are  still 
many  lines  in  these  poems  that  show  a  brisk  interchange  of 
other  products.  For  instance,  these  near  the  end  of  the 
seventh  book  of  the  Iliad  :  — • 

“  But  the  long-haired  Greeks 

Bought  for  themselves  their  wines;  some  gave  their  brass, 

And  others  shining  steel ;  some  bought  with  hides, 

And  some  with  steers,  and  some  with  slaves,  and  thus 
Prepared  an  ample  banquet.”  1 

Still,  there  are  hints  in  Homer,  that,  though  there  was  then 
no  money  passing  from  hand  to  hand,  there  was  then  and 
there  a  sort  of  common  measure  of  things  exchangeable. 
Several  articles  are  mentioned  in  his  poems  as  being  worth 
so  many  oxen .  For  example,  near  the  middle  of  the  sixth 
book  of  the  Iliad,  in  these  lines :  — 

“  Then  did  the  son  of  Saturn  take  away 
The  judging  mind  of  Glaucus,  when  he  gave 
His  arms  of  gold  away  for  arms  of  brass 
Worn  by  Tydides  Diomed,  — the  worth 
Of  fivescore  oxen  for  the  worth  of  nine.”  2 

Herodotus,  the  father  of  History,  gives  many  notices  of 
the  coins  and  commerce  of  both  coasts  of  the  Archipelago, 
and  also  leads  us  to  infer  that  more  of  time  and  thought  were 
given  to  matters  of  trade  by  the  Greeks  than  by  the  Orien¬ 
tals,  although  slaves  were  a  curse  to  Greece  and  her  colonies 
as  they  have  always  been  elsewhere  and  for  the  same  reasons. 
Besides  this,  the  very  form  of  the  Greek  States,  in  which  the 
affairs  of  private  life  were  subordinated  to  those  of  public 
life,  —  the  State  being  every  thing  and  the  individual  only 
that  which  the  State  allowed  him  to  be,  —  was  really  hostile 
to  the  development  of  private  and  associated  industry.  Be¬ 
sides  this,  various  States  so  organized  would  naturally  be 


1  Bryant’s  translation. 


*  Bryant,  307-311. 


HISTORY  OF  THE  SCIENCE. 


9 


and  actually  were  often  at  war,  which  is  a  great  foe  both  to 
domestic  and  foreign  exchanges.  Still,  the  historian  notes 
many  things  that  interest  us  as  economists  ;  for  example, 
speaking  of  the  Lydians  across  the  sea  to  the  eastward,  and 
not  knowing  as  we  do  their  indebtedness  to  the  Babylonians, 
he  says  (I.  94),  “  So  far  as  we  have  any  knowledge,  they  were 
ihe  first  nation  to  introduce  the  use  of  gold  and  silver  coin , 
and  the  first  who  sold  goods  by  retail .”  lie  says  also  of 
Pheidon,  a  famous  king  of  Argos,  who  flourished  about  750 
B.C.,  that  it  was  he  “ who  first  established  weights  and 
measures  throughout  the  Peloponese.”  His  very  ignorance  of 
Cornwall  and  the  Isle  of  Wight,  and  of  the  amber  coast  of 
the  German  ocean,  conveys  to  us  (III.  115)  a  truth,  which 
was  then  kept  well  concealed  by  the  shrewd  Phoenician 
traders  :  — “  Nor  do  I  know  of  any  islands  ccdled  the  Ccissi- 
terides  [Tin-islands],  whence  the  tin  comes  which  we  use: 
nevertheless ,  tin  and  amber  do  come  to  us  from  the  ends  of 
the  earth.”  But  on  the  other  hand  he  knew  very  well  indeed 
(IV.  181-185)  about  the  traffic  in  salt  and  dates —  mediated 
also  by  the  Phoenicians  —  in  North-western  Africa. 

Xenophon,  a  personal  disciple  of  Socrates,  is  the  first 
man  known  to  have  treated  economic  subjects  at  some  length 
in  a  connected  way.  Though  best  known  to  the  world 
through  the  Expedition  of  the  younger  Cyrus,  his  name  is 
well  worthy  of  mention  in  any  sketch  like  this  now  in  hand. 
As  a  patriotic  and  observant  Athenian,  he  wrote  two  short 
essays,  which  clearfy  show  the  drift  of  Greek  opinion  on  this 
subject  about  375  B.C.  One  of  these  is  a  dialogue  entitled 
“  The  Economist,”  in  which,  though  he  does  not  give  us  its 
limits  and  divisions,  he  says  that  Economy  is  a  science  by 
itself,  and  goes  on  to  make  the  legal  distinction  between 
olklcl,  house ,  and  ou<o?,  the  household  estate.  As  the  name 
of  our  science  is  derived  from  oLco?,  estate ,  and  vo/xos,  law , 
and  as  Xenophon  first  used  this  compound  in  a  sense  not 
very  unlike  its  present  meaning,  he  may  be  said  to  be  the 
author  of  the  name  of  the  science  so  far  as  the  noun  is  con- 


10 


POLITICAL  ECONOMY. 


eerned.  The  other  tract  is  entitled  “Ways  and  Means,” 
and  its  object  is  to  propose  methods  for  increasing  the  reve¬ 
nues  of  Athens.  To  this  end,  among  others  much  less 
sound,  he  makes  these  wise  proposals  :  —  that  the  State  offer 
encouragements  to  the  settlement  of  aliens,  in  order  to  swell 
the  active  population  and  increase  the  revenue  from  the 
aliens’  tax ;  that  merchants  and  shipmasters  of  all  nations 
receive  special  honors  in  the  city,  in  order  to  attract  more  of 
them  thither  and  thus  augment  the  income  from  duties  on 
imports  and  exports ;  that  prizes  be  offered  the  presidents 
of  the  courts  to  expedite  the  trial  of  commercial  causes ; 
and  that  a  Council  of  Peace  be  instituted,  by  whose  media¬ 
tion  war  might  be  avoided,  and  the  State,  in  the  enjoyment 
of  durable  tranquillity,  enter  gradually  upon  measures  of 
national  improvement. 

The  same  book  has  these  just  views  on  money:  —  “ In 
most  of  the  other  cities ,  a  trader  is  obliged  to  take  commodi¬ 
ties  for  those  he  brings ,  because  the  money  used  in  them  has 
not  much  credit  outside;  ivith  us ,  on  the  contrary ,  the  foreign 
merchant  has  the  advantage  of  finding  a  multitude  of  objects 
which  are  everywhere  in  demand ,  and  besides ,  if  he  does  not 
wish  to  encumber  his  vessel  with  merchandise ,  he  takes  his 
pay  in  ready  money,  which  of  all  negotiable  articles  is  the 
safest  and  most  convenient ,  as  it  is  received  in  all  countries , 
and  besides ,  it  always  brings  back  something  to  its  master , 
when  the  latter  judges  proper  to  dispose  of  it.”  The  best 
sentence  in  the  book,  whether  one  looks  at  the  power  of  the 
State  either  for  good  or  evil,  is  this  :  —  “  One  has  very  long 
arms ,  when  he  has  those  of  an  entire  people.”  But  slavery 
taints  all  that  it  touches.  It  tainted  the  Greek  mind  through 
and  through  with  contempt  for  the  arts  of  common  labor. 
Xenophon  also  says;  —  “  The  manual  arts  are  infamous 
and  unworthy  of  a  citizen.  Most  of  them  deform  the  body. 
They  oblige  one  to  sit  down  under  shelter  or  near  the  fire. 
They  leave  time  neither  for  the  republic  nor  one1  s  friends.” 

Plato  was  a  fellow  disciple  of  Socrates  with  Xenophon, 


HISTORY  OF  THE  SCIENCE. 


11 


but  was  more  receptive  as  a  pupil  and  more  profound  as  a 
thinker  than  his  fellow.  He  gave  however  but  little  atten¬ 
tion  to  matters  of  exchange,  and  fully  shared  in  the  con¬ 
tempt  of  his  time  for  the  laboring  classes.  But  in  the 
u  Republic,”  in  which  he  tries  to  sketch  a  perfect  state  of 
society,  and  which  is  indeed  so  ideal  and  utopian  that  he 
himself  had  little  faith  that  it  could  be  realized  in  fact,  he 
shows  in  two  places  of  the  dialogue  that  he  knew  very  well 
the  natural  need  of  trade,  and  the  function  of  money.  “  In 
fact ,  we  are  not  all  born  with  the  same  talents ,  and  every  one 
manifests  particular  inclinations.  Things  would  then  go 
better ,  if  every  man  confined  himself  to  one  trade ,  because  the 
task  is  better  and  more  easily  accomplished  when  it  is  adapted 
to  the  tastes  of  the  individual  and  he  is  free  from  every  other 
care.1  1  “ People  must  be  found  who  will  take  upon  themselves 
the  charge  of  importing  and  exporting  commodities.  These 
are  called  traders.”  —  “  Yes ,  and  besides ,  if  the  trade  is 
carried  on  by  sea,  another  set  of  people  will  be  needed  for 
navigation  purposes.”  —  “But,  in  the  city,  how  will  our 
citizens  distribute  the  results  of  their  labor?”  —  “  It  is  evi¬ 
dent  that  it  will  be  by  sale  and  'purchase .”  —  “  Then  we  need 
a  market ,  too,  and  a  money,  symbol  of  the  contract.”  No 
one  has  ever  put  better  than  this  the  doctrine  of  division  of 
labor,  and  of  the  origin  of  money.  Finding  such  good 
sense  at  this  point,  we  are  amazed  to  read  at  another ;  — 
“ Nature  made  neither  shoemakers  nor  blacksmiths;  such 
occupations  degrade  the  people  who  engage  in  them ,  base  mer¬ 
cenaries,  who  are  excluded  by  their  very  condition  from  polit¬ 
ical  rights.  As  to  tradesmen,  accustomed  to  lie  and  deceive, 
they  will  be  suffered  in  the  city  only  as  a  necessary  evil.” 

Plato  dreams  of  a  certain  kind  of  equality  for  the  mem¬ 
bers  of  the  leading  class  of  his  ideal  State,  and  proposes 
for  them  a  property  and  even  wives  in  common:  —  “  I  pro¬ 
pose  that  the  wives  of  our  warriors  be  common  to  all;  that  no 
one  of  them  live  solely  with  any  particular  one;  that  the 
children  be  common ,  and  that  the  latter  should  not  know  theii 


12 


POLITICAL  ECONOMY. 


parents ,  nor  the  parents  their  children .”  No  wonder  that  a 
surmise  that  some  of  these  things  were  contrary  to  truth 
and  nature  took  hold  of  their  author:  —  “  We  cannot ,  how¬ 
ever ,  hope  to  realize  the  plan  of  this  perfect  republic.  As 
skilful  painters  delineate  in  bold  outlines  models  of  an  Ideal 
beauty ,  impossible  to  find  in  individuals ,  so  we  only  attempt 
to  present  a  finished  type.” 

When  we  come  to  Aristotle,  we  strike  the  richest  vein  of 
ore  in  the  whole  Greek  field.  He  has  sometimes  been  called 
the  father  of  Political  Economy.  He  is  certainly  the  father, 
if  not  of  the  science,  of  this  name  of  the  science,  which, 
however,  lie  did  not  intend  should  be  the  name  of  the  sci¬ 
ence  at  all.  It  is  one  of  the  queer  things,  that,  while 
Aristotle  in  due  form  called  the  science  Ciirematistics,  the 
Science  of  Property ,  which  is  a  good  name  for  it,  another 
name,  which  is  not  in  itself  a  good  one,  wdiich  he  used 
incidentally  in  a  classification  in  a  quite  other  than  the  pres¬ 
ent  sense,  has  come  in  the  course  of  time  to  be  fixed  to  the 
science  as  by  his  authority.  The  good  name  he  gave  to  it  is 
thrown  off :  the  poor  one  he  never  thought  of  as  such 
is  clung  to.  In  the  second  book  of  his  “Economics”  he 
divides  economy  into  four  kinds,  the  regal,  the  satrapical, 
the  political ,  and  the  domestic.  By  the  first  he  means  the 
central,  by  the  second  the  provincial,  administration  of  a 
great  empire  like  that  of  Persia  ;  by  the  third,  the  adminis¬ 
tration  prevailing  in  free  States;  and  by  the  fourth,  what 
we  also  mean  by  domestic  economy.  By  some  means  this 
third  term  became  attached  to  our  science  as  its  name,  and 
has  done  it  harm,  because  the  adjective  conveys  the  idea 
that  the  science  has  much  to  do  with  Politics  proper. 

Indeed,  Aristotle’s  contributions  to  the  science  are  found 
quite  as  much  in  his  “Politics”  and  “Ethics”  as  in  his 
“Economics.”  In  all  three  of  these  treatises  of  this  tran¬ 
scendent  thinker  are  to  be  found  acute  definitions,  shrewd 
remarks,  and  some  information  as  to  facts,  relating  to  the 
proper  science  of  exchanges.  This,  for  example,  is  a  per- 


HISTORY  OF  TnE  SCIENCE. 


13 


feet  definition  of  property: — - ‘ 4  But  by  property  we  mean 
every  thing ,  of  which  the  value  is  measured  by  money.”  (Eth¬ 
ics,  IV.  i.)  The  proper  boundary  line  between  economy 
and  morals  is  drawn  as  follows :  —  u  Whenever  there  -vs  no 
agreement  made  about  the  service  performed ,  those  who  con¬ 
fer  a  favor  freely  for  the  sake  of  the  persons  on  whom  they 
confer  it,  cannot  complain;  for  the  value  of  it  is  not  meas¬ 
ured  by  money,  and  no  equivalent  price  can  be  paid.” 
(Ethics,  IX.  i.)  The  same  chapter  accurately  describes  the 
ultimate  phenomenon  of  value  as  between  the  two  persons 
exchanging:  —  “  For  each  fixes  his  mind  on  that  which  he 
happens  to  want ,  and  for  the  sake  of  that  will  give  what  he 
does  give.”  Aristotle  understood,  as  well  as  any  one  under¬ 
stands  at  present,  the  function  of  money  as  a  measure :  — 
“  Money,  therefore,  as  a  measure,  by  making  things  commen¬ 
surable,  equalizes  them ;  for  there  coidd  be  no  commerce  with¬ 
out  exchange,  no  exchange  without  equality,  and  no  equality 
without  the  possibility  of  being  commensurate.”  (Ethics, 
V.  v.) 

Although  Aristotle  was  a  pupil  of  Plato,  his  philosophy 
was  quite  distinct  from  his  master’s.  In  direct  opposition 
to  Plato’s  proposed  community  of  goods,  he  insists  strongly 
on  the  rights  and  benefits  of  private  property.  (Pol.  II.  v.) 
He  goes  a  long  way  beyond  Plato,  in  including  the  personal 
services  of  judges  and  senators,  for  example,  among  valuable 
things.  (Pol.  IV.  iv.)  He  explains  very  well  the  coming  in 
of  money :  —  “  People  agreed  to  give  and  receive  in  trade  a 
useful  material  of  easy  circulation.  They  adopted  for  this 
use  iron,  silver,  and  other  metals.  This  first  symbol  of  ex¬ 
change  was  valued  at  the  beginning  only  according  to  its  vol¬ 
ume  and  weight;  afterwards  it  was  stamped  with  a  mark 
which  denoted  the  value,  in  order  to  dispense  with  any  other 
verification.”  (Pol.  I.  vi.)  Then  follows  a  just  definition 
of  money  as  “  an  intermediary  commodity  designed  to  facili¬ 
tate  an  exchange  of  tv:o  other  commodities ;  ”  and  a  just  cor¬ 
ollary  from  that,  namely,  that  money  is  a  mere  means,  and 


14 


POLITICAL  ECONOMY. 


not  an  end  in  itself.  (Pol.  I.  ix.)  He  estimates  agriculture 
highly,  as  the  ground  of  all  other  arts,  and  as  most  favor¬ 
able  to  health  and  morals  and  good  government.  (Eeon. 
I.  ii.) 

But  much  dross  comes  out  with  this  good  gold.  He  who 
sa3rs,  u  The  best  nation  is  a  nation  of  farmers’ ’  (Pol.  VI. 
iv.),  says  also,  “ Neither  should  they  who  are  destined  for 
office  be  husbandmen .”  (Pol.  VII.  ix.)  He  defends  out¬ 
right  the  slavery  of  the  inferior  members  of  the  human  race : 
—  “  These  individuals  are  destined  by  nature  to  slavery,  be¬ 
cause  there  is  nothing  better  for  them  than  to  obey.”  (Pol. 
III.  i.)  “ It  is  clear ,  then ,  that  some  men  are  free  by  nature , 

and  others  are  slaves ,  and  that  in  the  case  of  the  latter  the  lot 
of  slavery  is  both  advantageous  and  just.”  (Pol.  I.  v.)  Of 
course,  to  a  man  who  thought  slavery  right,  and  who  lived 
in  the  midst  of  it,  all  kinds  of  manual  labor  would  seem 
mean  :  —  “  And  indeed  the  best  regulated  States  will  not  per¬ 
mit  a  mechanic  to  be  a  citizen;  for  it  is  impossible  for  one 
who  lives  the  life  of  a  mechanic  or  hired  servant  to  practise  a 
life  of  virtue.”  (Pol.  III.  v.)  Such  views  as  these  are  quite 
incompatible  with  any  sound  and  complete  science  of  econ¬ 
omy,  aud  are  the  reason  why  the  man  who  held  them,  with 
all  his  rare  skill  in  these  things,  and  who  came  so  near  found¬ 
ing  a  school  in  this  science  for  all  time,  yet  failed  to  put  his 
name  at  the  head  as  founder  and  father. 

Once  in  a  while  Aristotle  makes  a  false  inference  from  a 
sound  principle,  as  when  he  infers  from  the  truth  that  money 
is  a  means  to  an  end,  that  interest  on  money  should  not  be 
paid  for  its  use,  overlooking  the  fact  that  money  is  a  form 
of  value  as  well  as  a  means  of  distributing  other  forms  of 
value:  —  “  For  usury  is  most  reasonably  detested ,  as  the 
increase  of  our  fortune  arises  from  the  money  itself  ,  and  not 
by  employing  it  for  the  purpose  for  which  it  was  intended.” 
(Pol.  I.  x.)  He  had  watched  well  the  spirit  of  monopoly, 
which  has  often  attended  exchanges,  and  always  will  attend 
them  unless  the  vigilance  of  the  people  insists  on  the  freest 


HISTORY  OF  THE  SCIENCE. 


15 


possible  competition  :  —  “  A  Sicilian  had  a  sum  of  money  in 
store.  He  bought  with  it  all  the  iron  there  was  at  the  forges. 
Soon  merchants  arrived  from  different  countries ,  and  found 
iron  only  with  him.  He  had  not  raised  the  price  too  high; 
however  he  doubled  his  investment ,  which  teas  fifty  talents .” 
The  keen  eye  of  this  G-reek  saw  clearly  the  vital  distinction 
which  we  now  make  between  Utility  and  Value,  and  which 
Adam  Smith  drew  less  sharply  between  ‘  ‘  value  in  use  and 
value  in  exchange:”  —  “  Every  article  of  property  has  tico 
uses ,  both  inherent  in  the  article.  One  is  the  natural  use , 
the  other  the  artificial  use.  Thus  the  natural  use  of  covering 
for  the  feet  is  for  aid  in  walking ;  its  industrial  use  is  to  be 
an  object  of  exchange .”  (Pol.  I.  vi.) 

It  is  not  quite  certain  whether  Aristotle  included  in  his 
term  for  property  —  XPW aTa  —  from  which  term  he  coins  his 
name  of  the  science  —  chrematistics  —  all  three  of  the  classes 
of  valuable  things,  namely,  material  commodities,  personal 
services,  and  credit-claims.  He  certainly  includes  the  first 
two,  and  there  are  some  good  reasons  for  thinking  that  his 
mind  took  into  the  term  the  third  also.  First,  he  defines 
property  as  “  every  thing ,  of  which  the  vedue  is  measured  b} 
money,”  which  implies  that  value  only  appears  through  ex¬ 
changes,  since  the  only  way  in  which  any  of  these  thing?/ 
can  be  truly  “  measured  by  money  ”  is  by  being  exchanged 
against  money ;  and  his  objection  to  usury  seems  to  imply 
that  notes  of  hand,  or  credit-claims  of  some  sort,  were  then 
in  common  use ;  and  it  is  certain  that  the  Greeks  borrowed 
money  freely  at  all  rates  of  interest,  and  they  could  hardly 
have  done  that  without  the  current  use  of  some  form  of  credit. 
Second,  the  later  law-usage  of  the  Greeks  expressly  includes 
credit-claims  in  the  term  xPWaTa  >  and  a  dialogue  a  little 
later  than  the  time  of  Aristotle,  called  u  Eryxias,”  includes 
under  that  term  even  more  distinctly  than  he  does,  “  those 
persons  who  teach  music  or  grammar  or  some  other  science , 
who  in  return  for  this  obtain  what  is  necessary  for  them  as  a 
remuneration  for  this  instruction.”  Thus  the  Greeks,  and 


16 


POLITICAL  ECONOMY. 


specially  Aristotle,  made  a  good  beginning  in  onr  science, 
and  there  they  stopped  short. 

But  the  Greek  States  showed  practical  good  sense  in  their 
laws  of  property.  They  fell  into  no  such  follies  as  marked 
sometimes  the  public  action  of  Rome,  and  of  many  modern 
States.  A  law  ascribed  to  Solon  made  free  at  Athens  the 
rate  of  interest  on  money  loaned,  and  there  is  no  evidence 
that  any  restriction  was  afterwards  imposed  either  there  or  in 
any  other  Greek  State.  Grote  says,  u  It  may  be  asserted 
with  confidence  that  a  loan  of  money  at  Athens  was  quite  as 
secure  as  it  ever  was  at  any  time  or  place  of  the  ancient  world  A* 
The  natural  march  of  industry  and  commerce  was  not  hin¬ 
dered  ;  there  was  no  forbidding  the  export  of  raw  materials 
or  of  specie  ;  no  favoring  of  manufactures  at  the  expense  of 
agriculture ;  no  efforts  to  preserve  an  artificial  balance  of 
trade ;  and  no  duties  on  imports  except  for  purposes  of  rev¬ 
enue.  These  at  Athens  itself  were  usually  2  °j0  of  the  value 
of  the  goods,  at  the  ports  of  her  subject-allies  5%,  and 
exceptional  cases  of  higher  rates  than  these  were  regarded 
as  extortionate.1 

3.  The  Romans  were  a  practical  people,  fond  of  law  and 
order,  and  naturally  addicted  to  trade.  Mommsen  thinks, 
(I.  iv.)  that  the  city  of  Rome  itself  had  its  origin,  or  at 
least  its  early  growth,  in  the  natural  traffic  that  followed  the 
course  of  the  Anio  and  the  Tiber.  4  4  Increase  of  substance 
and  of  prosperity  by  husbandry  and  the  rearing  of  flocks  and 
herds ,  by  seafaring  and  commerce  —  this  was  what  the  Ro¬ 
man  desired  from  his  gods ;  and  it  very  well  accords  with  this 
view ,  that  the  god  of  good  faith  (deus  fidius) ,  the  goddess  of 
chance  and  good  luck  (fors  fortuna) ,  and  the  god  of  traffic 
(mercurius) ,  originating  out  of  their  daily  dealings ,  appear 
very  early  as  adored  far  and  near  by  the  Romans.  Strict 
frugality  and  mercantile  speculation  were  rooted  in  the  Ro - 


1  See  Boeckh’s  Public  Economy  of  Athens,  passim  ;  Heeren’s  Ancient  Greece, 
chap,  x.;  Grote’s  Greece,  vol.  3,  chap,  xi.;  Macleod’s  Econ.  Phil.  vol.  1,  pp.  47,  135; 
and  Blanqui’s  Hist.  Pol.  Econ.  chap.  iii. 


t 


HISTORY  OF  THE  SCIENCE. 


17 


man  character  too  deeply  not  to  find  their  thorough  reflection 
in  its  divine  counterpart.”  (I.  xii.)  But  unfortunately,  the 
Romans  worshipped  Mars  even  more  devoutly  than  they 
worshipped  Mercury  ;  and  the  almost  constant  recurrence  of 
wars,  down  to  the  time  of  the  empire,  interfered  sadly  with 
the  natural  growth  of  trade  and  commerce.  Besides  this, 
the  form  of  slavery  among  the  Romans  was  far  worse  than 
that  in  vogue  among  the  Greeks,  or  any  of  the  modern  na¬ 
tions,  —  u  it  is  very  possible  that,  compared  with  the  suffer¬ 
ing  of  the  Roman  slaves,  the  sum  of  all  Negro  suffering  is 
but  a  drop,”  — and  the  more  servile  and  hopeless  the  com¬ 
mon  laborer,  the  worse  the  name  and  fame  of  all  labor. 

The  courtly  Cicero  apologizes  in  a  letter  to  his  friend  for 
his  sorrow  over  the  death  of  his  favorite  slave ;  and  in  sev¬ 
eral  passages  of  the  “  De  Ofliciis  ”  he  follows  his  Greek 
teachers,  Plato  and  Aristotle,  and  declaims  in  a  pitiful  way 
against  the  noble  rights  of  labor.  ‘ 4  All  artisans  are  en¬ 
gaged  in  a  degrading  profession.”  Again,  “there  can  be 
nothing  ingenuous  in  a  workshop.”  When  trade  and  com¬ 
merce  are  carried  on  on  a  small  scale,  “they  are  to  be 
regarded  as  disgraceful;”  when  on  a  large  scale,  “they 
must  not  be  greatly  condemned  —  non  admodum  vituper- 
anda!  ”  (I.  42.)  When  social  prejudices  and  views  of  labor 
like  these  are  held  by  the  foremost  man  of  his  time,  the  best 
educated  and  the  most  liberal,  there  is  no  longer  room  for 
surprise  at  the  comparative  lack  of  Roman  contributions  to 
our  science. 

Then  the  form  which  the  love  of  gain  took  on  at  Rome 
was  a  great  bar  to  much  study  into  the  real  nature  of  gains. 
Instead  of  the  usual  voluntary  union  of  capital  and  labor 
for  the  mutual  benefit  of  each,  the  laborer  was  owned  by  the 
capitalist,  and  the  true  relations  between  the  two  were  dis¬ 
guised  and  distorted.  Business  in  all  its  branches  came  to 
be  carried  on  by  means  of  slaves  ;  the  lands  were  tilled  by 
slaves ;  slaves  became  the  artisans  of  the  country ;  the 
money-lenders  and  the  bankers  of  the  centre  scattered 


18 


POLITICAL  ECONOMY. 


branch-banks  in  the  towns  under  the  direction  of  tneir 
slaves  and  freedmen  ;  the  company  that  leased  on  specula¬ 
tion  the  customs-duties  from  the  State  had  their  slaves  and 
freedmen  levy  these  duties  at  each  custom-house ;  the  con¬ 
tractor  for  buildings  bought  architect-slaves  ;  and  the  mer¬ 
chant  imported  his  goods  in  ships  of  his  own  manned  by  his 
slaves  or  freedmen,  and  then  sold  the  same  at  wholesale  or 
retail  by  the  same  means.  In  this  way  a  gigantic  system  of 
unnatural  traffic  was  built  up  and  extended.  “  Roman  mer¬ 
cantile  transactions  fully  kept  pace  with  the  contemporary 
development  of  political  power,  and  were  no  less  grand  of 
their  kind.”  “  The  Roman  denarius  followed  up  closely  the 
Roman  legions.”  (Mom.  III.  12.)  Thus  great  estates 
were  acquired  in  certain  families.  A  Greek  writer  observes 
of  the  younger  Scipio  Africanus,  that  he  was  not  rich  “  for 
a  Roman ;  ”  and  Lucius  Paullus,  though  he  had  an  estate  of 
$70,000,  was  not  reckoned  among  the  rich  senators  ;  and 
each  of  the  daughters  of  Scipio  Africanus  the  elder  received 
from  him  as  a  marriage  portion  $60,000. 

This  spirit  of  speculation  that  came  to  pervade  all  the 
forms  of  Roman  life,  the  mode  of  doing  business  by  means 
of  contracts  adopted  by  the  State  and  extended  by  private 
persons  to  almost  all  their  affairs,  the  power  of  capital  apt 
to  be  unscrupulous  which  put  slaves  and  cattle  upon  the 
same  level,  the  absorption  of  the  larger  part  of  Roman 
riches  by  the  few  great  families,  and  the  source  of  the 
most  of  these  riches  as  from  conquests  and  from  tributes 
and  often  from  official  extortion  in  the  provinces,  excited  the 
strong  hostility  of  the  Roman  moralists,  and  thus  put  up 
another  bar  to  economical  inquiry.  Cato  the  elder,  a  leader 
of  these  moralists  and  of  a  reform  party  in  Rome,  while  he 
believed  in  and  practised  a  diligent  money-getting  by  means 
he  deemed  lawful,  and  wrote  to  his  son,  —  “  a  widow’s  es¬ 
tate  may  diminish ,  but  a  man  must  increase  his  substance , 
and  he  is  worthy  of  praise  and  full  of  a  divine  spirit ,  whose 
account-books  show  at  his  death  that  he  has  gained  more  than 


HISTORY  OF  THE  SCIENCE 


19 


he  has  inherited;  ”  wrote  also  in  liis  book  on  agriculture,  — 
“ lending  money  at  interest  has  many  advantages ,  hut  it  is 
not  honorable .  Our  forefathers  accordingly  ordained  and  in- 
scribed  it  in  their  laws ,  that  the  thief  should  be  bound  to  -pay 
twofold ,  but  the  man  who  takes  interest  fourfold ,  compensa¬ 
tion;  whence  we  may  infer  how  much  worse  a  citizen  they 
deemed  the  usurer  than  the  thief.”  “  When  our  forefathers 
pronounced  the  eulogy  of  a  worthy  man ,  they  praised  him  as 
a  worthy  farmer  and  a  worthy  landlord;  one  who  was  thus 
commended  was  thought  to  have  received  the  highest  praise. 
The  merchant  I  deem  energetic  and  diligent  in  the  pursuit  of 
gain;  but  his  calling  is  too  much  exposed  to  perils  and  mis¬ 
chances.  On  the  other  hand ,  farmers  furnish  the  bravest  men 
and  the  ablest  soldiers ;  no  calling  is  so  honorable ,  safe ,  and 
inoffensive  as  theirs ,  and  those  who  occupy  themselves  with  it 
are  least  liable  to  evil  thoughts.” 

Again,  the  policy  of  the  Roman  Government  in  respect  to 
the  prices  of  grain  became  fatal  to  the  small  farmers  of  Italy. 
From  an  early  time,  the  State,  as  was  perhaps  reasonable 
under  the  circumstances,  had  kept  a  watchful  eye  on  the 
prices  of  the  food-grains,  and,  whenever  it  looked  like  a 
dearth  at  home,  had  made  well-timed  purchases  of  grain 
abroad  for  the  army  and  the  people  also ;  but  later,  after 
the  conquest  of  Sicily  and  of  other  fertile  countries  growing 
grain,  the  tribute-deliveries  of  these  States  subject  to  Rome, 
and  the  chance  to  buy  at  cheap  rates  a  vast  mass  of  grain 
from  over  sea,  tempted  the  State  to  glut  the  markets  of  the 
city  with  such  grain  at  such  prices  as  proved  the  ruin  of 
the  home  grain-growers.  The  small  Italian  farmer  could  not 
raise  grain  for  such  prices,  and  therefore  lost  his  market ;  in 
vain  did  Cato  scold  at  this  great  wrong ;  by  and  by  grain 
was  doled  out  as  a  gift  to  the  hungry  citizens  at  the  expense 
of  the  State  treasury ;  and  the  capitalists,  no  longer  able 
to  loan  money  to  the  small  farmers  because  these  could  not 
repay  them,  began  to  buy  up  the  small  holdings  and  to  merge 
them  into  larger  ones  managed  now  by  freedmen  and  slaves. 


20 


POLITICAL  ECONOMY . 


Thus  free  labor  passed  off  from  the  soil,  and  Pliny  writes  its 
epitaph  in  three  memorable  words,  — 11  latifundia  perdidere 
Italiam ,”  —  broad  farms  proved  the  ruin  of  Italy.  It  is 
plain,  that  a  sound  science  of  biding  and  selling  could  hardly 
be  found  amid  such  views  of  labor,  such  methods  of  gain, 
such  moral  notions,  and  such  interferences  with  prices  on 
the  part  of  the  State,  as  prevailed  at  Rome. 

Strange  to  say,  it  is  in  the  Roman  Law  that  we  find, 
nevertheless,  some  admirable  definitions,  some  acute  distinc¬ 
tions,  and  even  some  theoretical  discussions,  relating  to  our 
science.  For  example,  one  would  have  to  try  hard  before  he 
could  improve  the  beauty  or  the  brevity  of  Ulpian’s  defini¬ 
tion  of  property  :  “  Ea  enim  res  est  quae  emi  et  vendi  potest. 
For  that  is  property  which  may  be  bought  and  sold.  (Fr.  17 
D.  XVIII.  4.)  Ulpian  was  a  Roman  jurist,  assassinated  by 
an  imperial  order  in  228  A.D.  ;  and  when  the  Code  of 
Justinian  was  formed  about  300  years  later,  many  extracts 
from  his  writings  found  their  way  into  the  Digest.  Ulpian 
also  says,  —  “  Nomina  eorum  qui  sub  conditione  vel  in  diem 
debent  et  emere  et  vender e  solemus.”  We  are  accustomed 
to  buy  and  sell  debts  payable  on  a  certain  day  and  at  a  certain 
event.  (Fr.  17  D.  XVIII.  4.)  As  examples  of  sharp  dis¬ 
tinction  in  matters  economical,  let  us  take  these  from  the 
Digest: —  u  Omnium  rerum ,  quas  quis  habere ,  vel  possidere, 
vel  persequi  potest ,  venditio  recteft.”  A  sale  is  lawful  of  any 
thing  which  a  man  /ms,  or  has  the  use  of  or  has  the  right 
to  sue  for.  (Fr.  34  §  1  D.  XVIII.  1.)  u  Pecuniae  nomine 
non  solum  numerata  pecunia ,  sed  omnes  res,  tarn  soli  quam 
mobiles  et  tarn  corpora  quam  jura  continentur.”  Under  the 
name  of  Property ,  not  only  ready  money ,  but  things  both  mov¬ 
able  and  immovable,  both  corporeal  things  and  Rights,  are 
included.  (Fr.  222  D.  L.  16.) 

As  examples  of  what  may  be  called  economic  discussion, 
let  us  note  two  passages  in  the  Institutes  of  Justinian. 
u  Some  valuable  things  are  corporeal  and  others  incorporeal . 
Things  corporeal  are  those,  which  by  their  nature  can  be 


HISTORY  OF  THE  SCIENCE. 


21 


touched,  such  as  land,  a  slave,  clothes,  gold,  siTaer,  and  othei 
things  innumerable.  Things  incorporeal  are  those  which  can 
not  be  touched,  such  as  those  which  consist  in  mere  rights ,  as 
an  inheritance,  a  usufruct,  uses,  and  all  obligations  however 
contracted.  Nor  is  it  any  objection  that  corporeal  things  are 
contained  in  an  inheritance ;  for  fruits  also  which  are  gath¬ 
ered  from  land  are  corporeal;  and  that  which  is  due  on  an 
obligation  is  usually  corporeal,  as  land,  a  slave,  money ;  bid 
the  right  of  inheritance,  and  the  right  of  using  and  enjoying, 
and  the  right  of  the  obligation  are  incorporeal .”  (Pr.  §§  1& 
2,  J.  II.  2.) 

“  Likewise  value  ought  to  dwell  in  money ;  for  it  used  to  be 
earnestly  discussed,  whether  value  can  be  in  other  things,  — 
for  example,  whether  a  slave  or  a  piece  of  land  or  a  garment 
can  be  the  value  of  another  thing.  Sabinus  and  Cassius 
think,  value  can  dwell  in  another  thing  [than  money"]  too; 
whence  is  that  which  was  commonly  said,  buying  and  selling 
is  carried  on  in  the  exchange  of  goods ,  and  that  view  of  pur¬ 
chase  and  sale  is  very  old;  and  they  used  for  proof  the  poet 
Homer,  who  somewhere  says,  that  the  army  of  the  Grecians 
procured  wine  in  exchange  for  certain  things.  Writers  of  a 
different  school  took  the  opposite  view  and  thought,  exchange 
of  commodities  was  one  thing,  but  buying  and  selling  another 
thing:  furthermore,  they  thought,  the  matter  could  not  be 
explained  in  the  case  of  exchanging  commodities,  which  thing 
seems  to  have  been  sold  as  property  and  which  given  as  the 
price;  for  reason  does  riot  allow  that  both  things  appear  to 
have  been  sold  and  given  as  the  price.  But  the  opinion  of 
Procullus  has  deservedly  prevailed,  who  says,  exchange  is  a 
particular  kind  of  transaction  different  from  selling ;  since 
this  is  both  supported  by  other  verses  of  Homer,  and  is  proven 
by  stronger  reasons ;  and  this,  both  former  illustrious  persons 
have  given  a  place  to,  and  it  is  shown  more  at  length  in  our 
Digest .”  (§  2,  J.  de  empt.  et  vend.  III.  23  (24).  The 
place  in  the  Digest  referred  to  is  D.  XVIII.  1.)  1 

»  Mr.  Macleod  was  the  first  modern  economist  to  bring  out  the  interesting  aspects 


22 


POLITICAL  ECONOMY. 


In  the  matter  of  common  sales,  and  in  the  matter  of  tax¬ 
ation,  the  Romans  showed  for  the  most  part  a  good  common 
sense,  that  is,  a  desire  to  be  fair  and  just.  The  law  held 
all  sales  to  be  valid,  in  which  a  tangible  thing  had  been 
rendered  and  received,  even  though  they  were  concluded 
without  any  legal  forms,  while  the  promise  of  a  gift  made 
without  due  form  was  null  both  in  law  and  fact.  On  the 
other  hand,  the  sale  of  personal  services  was  much  restricted 
among  the  Romans  as  compared  with  modern  peoples  both 
by  the  prevalence  of  slavery  and  also  by  the  odd  relations 
between  Clients  and  Patrons.  Also,  sales  of  credits,  the 
only  remaining  class  of  things  salable,  did  not  reach  very 
large  proportions  among  the  Romans ;  because,  first,  there 
was  no  credit  on  land  security,  but  instead  of  a  debt  on 
mortgage  the  land  was  passed  over  at  once  to  the  creditor 
as  if  he  were  actual  owner,  who  thereupon  gave  his  word 
of  honor  ( Jiducia )  that  he  would  not  sell  the  land  until 
the  debt  fell  due,  and  would  at  once  give  it  back  when 
the  debt  were  paid ;  and  because,  second,  personal  credits, 
except  in  one  case,  gave  no  right  of  action  at  law,  although 
the  poor  debtor  who  could  not  pay  fell  summarily  into  the 
power  of  the  creditor,  who  could  treat  him  as  a  slave  or 
worse.  44  The  law  could  not  have  more  clearly  expressed  its 
design,  which  was  to  establish  at  once  an  independent  agri¬ 
culture  free  of  debt  and  a  mercantile  credit,  and  to  sup¬ 
press  with  stringent  energy  all  merely  nominal  ownership 
and  all  breaches  of  fidelity.”  The  principle  of  insurance 
was  unknown  at  Rome ;  but  something  very  much  like  it, 
namely,  the  nautical  loan,  or  as  we  call  it  4 4  bottomry,”  was 
much  used.  Even  Cato,  who  hated  interest,  did  not  scruple 
to  lend  money  with  others  on  ships  pledged  for  its  repay¬ 
ment  with  premium  in  case  of  a  successful  voyage :  if  the 
ship  were  lost,  the  lender  lost  his  money. 


of  the  Roman  Law  towards  our  Science.  This  last  extract  from  the  Institutes  was 
called  to  my  attention  by  Mr.  Melville  Egleston,  and  was  translated  forme  by  Mr. 
F.  W.  Fiske, —  both  recent  graduates  of  this  college. 


HISTORY  OF  THE  SCIENCE. 


23 


In  general,  a  sale  on  credit  neither  gave  nor  took  away 
the  right  of  property,  and  so  furnished  no  ground  of  legal 
action ;  but  in  one  class  of  cases  it  did,  namely,  in  that  of 
the  loan  ( nexum )  of  ready  money.  This  exception  in  law 
shows  clearly,  what  is  shown,  too,  in  the  passage  from  the 
Institutes  but  just  now  quoted,  that  the  Romans  looked 
upon  money  as  something  quite  different  from  other  forms 
of  salable  things  ;  and,  in  the  teeth  of  the  sound  view  of 
Aristotle,  who  said  that  money  is  a  means  only,  deemed  it 
in  a  sense  an  end  in  itself,  —  something  to  be  gained  and 
not  readily  to  be  parted  with.  If  this  were  the  right  view 
of  money,  then  the  policy  to  spring  from  it  might  well  be,  — 
Get  all  the  money  possible  into  the  country  and  let  as  little 
as  possible  out !  Just  this  came  to  be  the  policy  of  the 
Romans.  In  one  of  his  orations  Cicero  says,  “  The  Senate 
solemnly  decreed,  both  many  times  previously ,  and  again  when 
I  was  consul,  that  gold  and  silver  ought  not  to  be  exported .” 
This  view  of  money  and  of  what  is  to  be  done  about  it  may 
be  said  to  be  the  first  Theory  of  Sales.  Let  us  call  it  the 
Bullion  Theory.  The  Romans  brought  it  forth,  and  other 
nations  took  it  from  them.  It  is  plausible  only.  Because 
all  men  seemed  eager  to  get  money,  and  because  when  the 
worth  of  any  thing  were  asked  for  the  answer  always  came 
—  so  many  denaries  or  sesterces  —  these  people  thought 
that  money  is  ultimate  and  not  mediate. 

Finally,  in  taxation  the  Romans  were  sensible  and  moder¬ 
ate.  They  laid  taxes  for  the  sake  of  getting  money  for  the 
public  treasury,  and  had  no  other  end  in  view.  They  knew 
nothing  of  what  has  since  become  famous  under  the  name 
of  “Protection.”  Their  taxes  were  both  direct  and  in¬ 
direct,  but  especially  the  latter.  The  chief  direct  tax  was 
the  land-tax,  that  is,  a  claim  to  the  tenth  part  of  the  sheaves 
and  of  other  field  produce,  such  as  grapes  and  olives ;  and 
also  pasture-money  ( scriptura )  demanded  of  those  who 
made  use  of  the  public  pastures  and  woods.  In  Macedonia, 
and  the  other  larger  provinces,  in  lieu  of  the  land-tax  a 


24 


POLITICAL  ECONOMY. 


fixed  sum  of  money  ( tributum )  was  paid  to  Rome  each  year 
by  each  community  in  its  own  way.  The  grain-tenths  and 
pasture-moneys  were  always  farmed  out  to  private  contract¬ 
ors  or  companies  on  condition  of  their  paying  fixed  quan¬ 
tities  of  grain  or  fixed  sums  of  money.  The  chief  indirect 
tax  was  customs-duties.  There  never  was  at  any  time  a 
general  tariff  for  the  whole  empire,  but  there  were  customs- 
districts,  such  as  Italy,  Sicily,  proconsular  Asia,  the  prov¬ 
ince  of  Narbo  in  Gaul,  and  others,  each  with  a  sort  of  tariff 
of  its  own,  and  some  with  special  immunities.  Goods 
imported  by  sea  into  Italy,  for  example,  not  for  the  per¬ 
sonal  use  of  the  importer,  were  subject  to  a  tax,  which 
seems  to  have  been  mainly  a  tax  on  luxuries,  since  pepper, 
cinnamon,  myrrh,  ginger,  perfumes,  ivory  and  diamonds, 
are  among  the  dutiable  goods  mentioned  in  one  of  these 
tariffs.  Sicily  had  a  tariff-tax  quite  distinct  from  this,  since 
one-twentieth  of  the  value  of  the  goods  ( b°]0 )  was  levied  on 
the  frontier  on  all  imports  and  exports  ;  and  a  similar  tax  of 
one-fortieth  was  laid  by  the  Sempronian  law  on  the  province 
of  Asia.  These  imposts,  too,  were  leased  to  contractors, 
which  gave,  of  course,  some  chance  to  fraud  and  wrong. 
There  were  other  temporary  taxes,  like  those,  for  instance, 
which  Augustus  laid  of  b°J0  on  legacies  and  inheritances, 
and  of  1%  on  articles  publicly  exposed  for  sale.1 

4.  Between  the  years  330  and  1453,  that  is  to  say,  from 
the  founding  of  Constantinople  till  its  capture  by  the  Turks, 
lies  the  Middle  Age.  The  main  fact  in  this  long  stretch 
of  time  was  the  conversion  of  Western  Europe  to  the  faith  of 
Christ.  The  new  faith  was  in  all  ways  favorable  to  trade. 
In  the  first  place,  little  by  little  it  took  the  life  out  of  Slavery. 
It  came  to  the  slave,  and  said,  Thou  art  the  Lord’s  freeman ; 
it  came  to  the  master,  and  said,  Thou  art  the  Lord’s  servant ; 
and  it  came  to  both  alike,  and  said,  Ye  are  brethren.  As  a 

1  Mommsen’s  Ilom.  Hist,  passim,  and  especially  TV.  ii. ;  Blanqui,  Hist.  Po.. 
Econ.  chap,  vii.;  and  articles  “Vectigalia”  and  “  Porto rium  ”  in  Diet,  of  Antiq. 
ulties 


HISTORY  OF  THE  SCIENCE. 


25 


rule,  the  Christian  church  has  always  and  everywhere  been 
a  foe  to  human  bondage ;  and  we  will  look  a  moment  to 
England  as  a  type  in  this  of  all  the  other  lands.  As  early 
as  the  7th  century,  Archbishop  Theodore  denied  Christian 
burial  to  the  kidnapper,  and  forbade  the  sale  of  children  by 
their  parents  after  the  age  of  seven  ;  a  little  later,  Bishop 
Egbert  of  York  excommunicated  the  seller  of  child  or  kins¬ 
folk  ;  the  killing  of  a  slave  by  lord  or  mistress,  though  no 
crime  m  the  eye  of  the  law,  became  a  sin  for  which  penance 
was  due  to  the  church ;  in  the  10th  century,  King  Athelstane 
gave  the  slaves  a  new  rank  in  the  realm  by  making  them 
mutually  responsible  in  cases  of  crime,  just  as  this  rule  had 
long  been  the  basis  of  order  among  the  freemen  ;  the  church 
also  led  the  way  in  the  work  of  directly  freeing  the  slaves, 
the  bishops  and  other  clergy  setting  the  good  example ;  says 
Macaulay,  “  when  the  dying  slaveholder  asked  for  the  last 
sacraments ,  his  spiritual  attendants  regularly  adjured  him,  as 
he  loved  his  soul ,  to  emancipate  his  brethren  for  whom  Christ 
had  died;  ”  often  slaves  were  set  free  before  the  altar  or  in 
the  church-porch,  and  the  solitary  church-Bible  bore  the 
record  of  the  fact  on  its  margins ;  and  before  the  close  of 
the  11th  century,  Archbishop  Laufranc  had  put  an  end  to 
the  slave-trade  in  its  last  hold,  the  port  of  Bristol.  When 
slavery  dies  out  anywhere,  trade  gaius  new  life  then  and 
there,  because  there  are  now  more  persons,  more  motives, 
and  more  resources,  to  trade.  Just  at  the  time  when  the  old 
white  slave-trade  ceased  in  England,  wre  read  that  “  the  realm 
increased  in  riches  and  prosperity .  Its  gold  work  and  em¬ 
broidery  were  famous  in  the  markets  of  Flanders  and  France .” 
On  the  other  hand,  Feudalism,  which  is  only  less  hostile  than 
slavery  to  a  free  and  varied  industry,  took  the  place  of  that 
in  many  parts  of  Europe,  and  retarded  for  a  long  while  the 
growth  of  a  wholesome  trade. 

In  the  second  place,  Christianity  makes  men  sensible  of 
new  wants,  puts  them  under  new  and  strong  impulses,  en¬ 
larges  their  foresight,  and  develops  in  them  new  grounds 


26 


POLITICAL  ECONOMY . 


of  mutual  trust.  All  of  these  things  help  on  buying  and 
selling,  and  the  felt  benefits  from  the  exchanges  already 
made  tend  constantly  to  increase  the  buying  and  selling  of 
the  future.  It  has  been  seen  in  every  age  since  the  Lord 
came,  that  His  truth  leads  men  on  to  trade  more  and  mcie, 
Dr.  Christlieb,  of  Bonn,  in  a  sinwy  of  modern  missions 
made  in  the  j^ear  1880,  uses  these  words,  —  “  it  has  been  calcu¬ 
lated  that  every  missionary  in  the  South  Seas  creates  on  an 
average  a  trade  of  $50,000  a  year.”  Still  it  is  true  that 
the  form  which  the  Christian  religion  took  on  in  the  Middle 
Age  held  back  these  forces  more  or  less  from  their  true 
working.  Men  became  monks  from  the  false  idea  that  the 
touch  of  the  world  taints  the  soul.  Religious  houses  were 
founded  in  spots  remote  from  the  haunts  of  men  ;  and  while 
the  brethren  often  drained  the  marshes,  and  made  many  a 
waste  acre  as  fertile  as  a  garden,  still  the  notion  lay  in  their 
minds  that  somehow  it  was  wrong  to  buy  and  sell  and  get 
gain.  The  schools,  which  were  under  the  control  of  the 
clergy,  favored  this  notion,  and  filled  the  minds  of  their 
pupils  with  religious  subtleties  and  scholastic  distinctions 
rather  than  with  a  solid  knowledge  of  the  world  as  it  is. 
Without  doubt  also  the  common  Christian  hatred  of  the  Jews, 
who  were  the  briskest  traders  and  principal  money-lenders 
of  the  Middle  Age,  deepened  this  prejudice. 

At  the  same  time  the  Jews  were  showing  to  the  world 
what  wonders  can  be  wrought  by  capital.  In  spite  of  the 
endless  disabilities  put  upon  them  by  law  and  public  opinion 
in  France,  Italy,  Spain,  Germany,  and  even  England,  the 
industry  and  frugality  of  these  strange  people  piled  up  at 
intervals  large  sums  of  money.  They  were  by  turns  shunned 
and  courted,  robbed  and  protected,  forbidden  and  then  en¬ 
couraged  to  trade,  often  banished  and  then  recalled,  always 
hated  and  yet  always  leaned  on,  sometimes  murdered  without 
mercy  and  again  armed  with  safe-conducts  for  travel  and 
trade.  Magna  Charta  forbids  in  1215  the  payment  of  inter¬ 
est  on  debts  due  the  Jews  in  behalf  of  any  minor  while  his 


t 


HISTORY  OF  THE  SCIENCE. 


27 


lands  are  in  wardship.  St.  Louis  of  France  (a  mere 
instance)  released  by  law  their  debtors  from  all  payment, 
shut  up  his  courts  to  their  claims,  and  even  forbade  their 
making  any  contracts  ;  and  again  in  1254  decreed  that  “  the 
Jews  must  cease  usuries,  blasphemies  and  sorcery,  and  live 
henceforth  by  the  labor  of  their  hands  and  other  tasks  with¬ 
out  loaning  money.”  Edward  I.  of  England  in  1290  bade 
them  forego  usury  on  pain  of  death,  and  shortly  after 
expelled  them  the  realm.  In  spite  of  all,  the  Jews  continued 
to  be  bankers,  bullion-dealers  and  money-lenders  to  the  Gen¬ 
tiles  ;  and  their  loans,  though  at  a  high  rate  of  interest,  gave 
a  sharp  spur  to  industrial  energy  and  to  the  building  of  castles 
and  cathedrals.  If  they  had  had  a  decent  freedom  and  secur¬ 
ity,  they  would  have  loaned  vaster  sums  at  lower  rates  and 
so  transformed  the  face  of  the  nations. 

Then,  too,  the  confusions  consequent  on  the  breaking  up 
of  the  Roman  Empire,  and  on  the  migration  of  the  modern 
nations  into  the  seats  of  the  ancient  civilization,  broke  in  two 
the  lines  of  the  older  commerce  and  put  off  for  a  long  time 
the  knitting  of  strong  new  ones.  The  lands  of  Western 
Europe  changed  hands.  Northmen  threw  themselves  into 
England  and  into  the  best  parts  of  France.  Through  the 
Moors,  the  East  poured  itself  into  the  West,  and  Bagdad 
was  joined  in  faith  and  works  with  Cordova,  which  at  length 
even  eclipsed  it  in  population  and  splendor.  Although  the 
Moors  brought  into  Europe  much  learning  and  much  trade, 
Jieir  defeat  at  Tours  in  732  and  their  final  expulsion  from 
Granada  in  1492  checked  the  growth  of  both  of  these,  and 
left  it  for  the  new  towns  founded  by  men  of  German  stock 
to  furnish  for  both  a  lasting  home. 

It  is  to  these  towns  made  free  one  b}7  one  from  the  servi¬ 
tudes  of  Feudalism  that  we  are  to  look  for  the  beginnings  of 
the  modern  forms  of  industry  and  commerce.  Exempted  in 
one  way  or  another  from  the  random  taxes  of  the  times,  and 
receiving  upon  one  ground  or  another  the  rights  of  self-gov¬ 
ernment  by  a  town-council,  and  of  self-defence  by  town- 


28 


POLITICAL  ECONOMY. 


walls  and  a  town-militia,  these  places  soon  became  the  seals 
of  a  busy  traffic  ;  and  in  turn  and  in  time  spurred  on  a  better 
agriculture  all  around  them  because  the  tillers  of  the  soil 
soon  wished  to  buy  with  their  produce  the  products  of  the 
towns ;  while  these  sought  and  found  a  widening  sale  of 
their  own  products  in  distant  markets  so  as  to  buy  therewith 
the  products  of  the  world.  So  London  thrived  after  the  gift 
of  its  first  charter  by  William  the  Conqueror,  and  especially 
after  the  charter  of  rights  granted  by  Henry  I.,  which  be¬ 
came  a  model  for  many  lesser  towns.  So  Oxford  thrived 
after  its  older  customs  and  exemptions  had  been  confirmed 
to  the  townsmen  by  Henry  II.,  u  as  ever  they  enjoyed  them 
in  the  time  of  Henry  my  grandfather ,  and  in  like  manner  as 
my  citizens  of  London  hold  them.”  In  the  next  century 
Magna  Charta  holds  these  words  ;  —  “  Let  the  city  of  London 
have  all  its  old  liberties  and  free  customs  as  well  by  land  as 
by  water.  Besides  this  we  will  and  grant  that  all  other  cities 
and  boroughs  and  towns  and  ports  have  all  their  liberties  and 
free  customs.”  The  same  instrument  secured  liberty  of  jour¬ 
ney  and  trade  to  foreign  merchants,  and  a  uniform  system  of 
weights  and  measures  throughout  the  realm.  The  old  frith- 
gilds  in  each  of  the  English  towns  had  early  united  in  one 
body  called  the  Merchant-Gild,  and  this  body  of  organized 
citizens  both  governed  the  town  as  such  and  controlled  all 
its  internal  trade ;  and  the  principal  street  of  old  London 
still  tells  in  its  name  of  u  Cheap-side,”  or  the  bargaining- 
place,  of  the  early  prominence  in  that  town  of  its  bujrnrs  and 
sellers.  The  principal  exports  of  England  in  this  period 
were  tin  and  wool ;  the  towns  in  Flanders  across  the  Chan¬ 
nel  spun  and  wove  and  dyed  earlier  and  better  than  England 
did ;  the  weavers  of  Bruges  were  celebrated  even  in  Charle¬ 
magne’s  time,  and  in  1430  Philip  the  Good  instituted  there 
the  order  of  the  Golden  Fleece,  which  still  exists  both  in 
Spain  and  Austria,  in  token  of  the  riches  and  honor  brought 
in  through  wool ;  the  looms  of  Ghent  and  Liege  were  equally 
rich  in  linens  ;  so  that  for  a  long  time  England  sold  her  raw 


HISTORY  OF  THE  SCIENCE. 


29 


wool  to  Flanders  to  take  back  fine  cloths  and  other  things 
in  pay.  From  his  Parliament  of  1275,  Edward  I.  obtained 
the  grant  of  Gs  8d  on  each  sack  of  wool  exported,  which  was 
the  very  beginning  of  a  legal  customs-revenue  in  England. 

The  famous  Hanse  towns,  so-called  from  an  old  Teutonic 
word  hansa ,  a  league,  formed  a  bond  of  union  for  the  de¬ 
fence  and  extension  of  commerce,  and  did  a  vast  deal 
toward  those  ends,  during  the  two  hundred  years  preceding 
the  fall  of  Constantinople.  Hamburg  had  been  founded  by 
Charlemagne  in  the  9th  century,  and  Liibeck  was  founded 
in  the  12th,  and  these  two  first,  and  afterward  other 
German  towns  near  the  Baltic  and  Northern  seas,  and  later 
towns  along  the  Rhine  and  elsewhere,  constituted  the  League. 
By  it  piracy  was  suppressed  in  the  northern  waters,  civiliza¬ 
tion  and  the  arts  were  established  along  their  shores  amid  the 
wild  Slavonic  settlers,  and  commodities  of  every  name  were 
made,  grown  or  distributed  by  means  of  the  marts  of  these 
towns,  which  numbered  at  last  about  70  in  all,  and  were 
divided  into  4  circles,  of  which  Liibeck  stood  at  the  head 
of  the  first,  Cologne  of  the  second,  Brunswick  of  the  third, 
and  Dantzic  of  the  fourth.  Partly  in  return  for  loans  of 
money,  since  trade  always  gives  birth  to  gains,  and  partly 
by  hook  and  by  crook,  these  Hanse  towns  obtained  from  the 
kings  of  the  North  special  privileges  in  navigation  and  ex¬ 
change,  which  they  afterwards  kept  by  force  of  arms.  In 
order  to  make  wider  and  easier  their  commercial  transactions 
the  League  had  Factories  so-called,  that  is,  depots  for  the 
sale  of  goods,  in  widely  distant  lands,  such  as  those  in 
Novgorod  in  Russia,  London  in  England,  Bruges  in  Flan¬ 
ders,  and  Bergen  in  Norway.  Along  this  first  open  route  to 
Russia  passed  the  goods  in  demand  there  to  bring  back  then 
as  now  the  skins,  hides,  grain,  hemp,  tar,  and  timber  of 
those  vast  regions.  Perfect  freedom  of  exchange  reigned 
between  all  these  towns,  and  between  them  and  their  distant 
depots.  Their  money  had  long  been  of  rare  purity  and  of 
right  weight,  whence  comes  a  famous  word  in  our  modern 


30 


POLITICAL  ECONOMY. 


world.  “In  the  time  of  King  Richard  the  First,  monie 
coined  in  the  east  parts  of  Germanic  began  to  be  of  especial! 
request  in  England  for  the  puritie  thereof,  and  was  called 
Easterling  monie,  as  all  the  inhabitants  of  those  parts  were 
called  Easterlings ,  and  shortly  after  some  of  that  countrie, 
skillfull  in  mint  matters  and  allais  were  sent  for  into  this 
realme  to  bring  the  coine  to  perfection ;  which  since  that 
time  was  called  of  them  sterling  for  Easterling .”  ( Camden .) 

The  Hanseatic  League  decayed  at  last,  partly  on  account  of 
internal  jealousies  between  the  members,  partly  on  account 
of  an  external  jealousy  of  their  special  privileges,  partly  also 
on  account  of  the  English  discovery  of  the  sea  route  to  Arch¬ 
angel  which  took  away  their  Russian  trade,  but  mainly  after 
all  on  account  of  the  successful  accomplishment  of  all  the 
work  they  had  had  in  hand. 

The  towns  of  Italy,  even  after  their  conquest  by  the  men 
of  German  stock,  kept  the  forms,  or  at  least  the  traditions, 
of  the  old  Roman  municipal  law,  and  therefore  came  earlier 
than  Teutonic  towns  elsewhere  into  prominence  in  all  the 
arts  of  trade.  Pisa  and  Genoa,  for  example,  grew  great  in 
commerce  even  before  the  Crusades  had  thrown  into  their 
bosom  a  good  part  of  the  riches  of  the  West  in  payment 
for  transportation  and  provisions,  and  had  gained  them  also, 
as  a  reward  for  direct  help  in  the  wars  of  the  time,  much 
dominion  in  the  Levant.  The  leaders  of  the  Crusades  liked 
to  enroll  in  their  ranks  artificers  of  all  kinds ;  and  these 
clear-eyed  men  watched  to  some  purpose  the  arts  of  the 
Saracens  and  Greeks,  and  brought  back  from  the  East  tc 
the  cities  of  Italy  and  to  the  West  generally  the  germs  of 
industries  a  thousandfold  more  valuable  than  all  the  riches 
spent  on  those  memorable  expeditions.  For  instance,  at 
Damascus  they  learned  how  to  work  figures  on  cloth  and 
steel,  as  the  terms  damask  aud  Damascus  blades  well  prove  ; 
at  Tyre  they  caught  the  art  of  making  those  fine  glass 
fabrics,  which  enriched  Venice  throughout  the  Middle  Age  ; 
at  Tripoli  they  saw  for  the  first  time  the  sugar-cane,  which 


HISTORY  OF  TnE  SCIENCE. 


31 


they  transplanted  to  Sicily ;  even  our  common  maize,  still 
called  in  Germany  Turkish  corn,  was  then  first  brought  west¬ 
ward  ;  and  more  than  all,  the  breeding  of  silk-worms  and  the 
making  of  silk,  arts  which  had  been  solely  Chinese  till  about 
550,  and  were  then  carried  to  Constantinople,  and  thence 
later  to  Greece,  and  in  1147  to  Sicily,  were  borne  by  the 
Crusaders  to  the  Italian  towns.  Lucca  passed  over  the  silk 
culture  to  Venice  in  1310  ;  and  that  town,  which  had  been 
founded  in  452  on  low  islands  as  a  refuge  from  the  terrible 
Huns,  became  in  the  14th  and  15th  centuries  the  chief  manu¬ 
facturing  and  commercial  city  in  Christendom.  Its  own 
products  were  glass,  silks,  cloth  of  gold,  leather,  and  sugar ; 
and  it  carried  for  all  Europe  the  drugs  and  spices  and  other 
products  of  the  East  Indies.  IIow  natural  and  how  gainful 
it  is  to  buy  and  sell !  Said  one  of  the  doges  of  Venice  on 
his  death-bed  in  1423,  “  I  leave  the  country  in  peace  and  pros¬ 
perity.  Our  merchants  have  a  capital  of  10,000,000  golden 
ducats  in  circidation,  on  which  they  make  an  annual  profit 
of  4,000,000  ducats.  We  have  4.5  galleys  and  300  ships 
of  war ;  3,000  merchant  vessels,  and  52,000  sailors;  and 
1,000  nobles  with  incomes  varying  from  700  to  4,000  ducats 
each.”  Incessant  wars,  privileges  restricted  to  “  nobles,” 
and  the  discovery  of  a  new  ocean  route  to  India  by  the  Cape 
of  Good  Hope,  sapped  this  enormous  opulence. 

Florence  had  its  very  birth  in  the  needs  of  traders,  and 
the  people  entered  into  the  mechanic  arts  with  such  zeal  that 
their  manufactures  of  wrool,  silk,  gold  brocade,  other  gold- 
work,  and  jewels  were  exported  everywhere ;  and  the  gains 
of  this  trade  gave  birth  to  banking  on  a  great  scale,  so  that 
the  loans  of  the  chief  sovereigns  of  Europe  were  largely 
taken  up  in  Florence  ;  in  1254,  the  Republic  coined  their 
famous  gold  florin,  unequalled  at  the  time  for  beauty,  as  the 
wide-spread  use  of  the  mint-term  florin  in  other  nations  till 
now  sufficiently  shows ;  and  in  process  of  time  there  was  a 
separation  at  Florence,  as  there  tended  to  be  also  in  Eng¬ 
land,  of  the  seven  “  Greater  Arts  ”  so-called  from  the  four- 


32 


POLITICAL  ECONOMY. 


teen  “  Lesser  Arts,”  and  even  a  subdivision  of  the  seven 
by  which  Cloth-making,  Dyeing,  and  Banking  held  the  very 
first  rank.  What  Florence  was  in  Tuscany,  Milan  became 
in  Lombardy.  This  city  was  equally  renowned  in  the  Mid¬ 
dle  Age  for  its  manufactures  of  arms  and  armor,  and  for  the 
elegance  of  its  finery  and  its  taste  as  the  leader  of  fashions, 
whence  came  our  good  word  milliner. 

While  in  Provence,  as  its  name  implies,  and  Languedoc, 
some  good  points  of  the  old  law  of  Rome  had  no  doubt  been 
kept  up,  the  provinces  of  France  in  the  time  under  review 
were  behind  Italy  and  Flanders  in  the  arts  of  buying  and 
selling.  The  minute  directions  of  Charlemagne,  who  gave 
much  attention  to  the  management  of  his  own  estates,  are 
still  extant,  some  of  them  sound,  and  all  of  them  curious. 
In  his  Capitularies ,  and  especially  that  entitled  De  Villis , 
we  find,  for  example,  these;  —  “Each  of  our  estates  shall 
be  provided  with  good  feather  beds,  mattresses,  coverlets, 
copper  vessels,  lead,  iron,  wood,  chains,  pot-hooks,  hatchets 
and  augers,  so  that  nothing  will  have  to  he  borrowed  of  any 
one.”  “  The  eggs  not  needed  for  consumption  on  the  farm 
shall  he  sold.”  “It  is  important  that  we  knowhow  much 
all  these  things  yield  us,  namely,  cattle,  mills,  woods,  ships, 
vegetables,  vineyards,  wool,  flax,  hemp,  fruits,  bees,  fish, 
skins,  wax  and  honey,  old  and  new  wines.  Every  thing  that 
has  not  been  consumed  in  the  service  of  the  king  must  he 
immediately  sold.”  “  Cows,  breeding-mares,  and  sheep  must 
be  multiplied.”  “  I  wish  also  a  good  account  to  be  rendered 
me  of  the  horns  of  my  bucks  and  of  my  goats,  as  well  as  of 
the  skins  of  my  wolves  taken  in  the  course  of  each  year. 
In  the  month  of  May,  let  terrible  war  he  made  without  fail  on 
the  wolves’  ivhelps.”  “  The  very  pious  lord  our  king  has  de¬ 
cided  that  no  man,  whether  ecclesiastic  or  layman,  either  in 
time  of  abundance  or  time  of  scarcity,  shall  sell  provisions 
higher  than  the  price  recently  fixed  per  bushel.”  This  prin¬ 
ciple  became  afterwards  the  famous  maximum  of  history. 
But  he  forbade  the  exportation  of  grain  in  times  of  scarcity 


HISTORY  OF  THE  SCIENCE. 


33 


on  pain  of  confiscation.  He  put  men  on  the  frontiers,  and 
guard-boats  at  the  mouths  of  rivers,  to  encourage  and  defend 
the  trade  with  foreigners.  He  undertook  to  dig  a  canal  to 
join  the  Khine  with  the  Danube.  He  ordered  a  uniform  sys¬ 
tem  of  weights  and  measures  throughout  his  empire,  punished 
the  makers  of  counterfeit  money,  and  forbade  monopolies . 
Usury  is  often  denounced  in  the  capitularies,  and  the  emperor 
himself  fixes  the  rate  at  which  money  shall  be  loaned  in  his 
dominions. 

But  Feudalism  was  as  hostile  to  progress  in  France  as  else¬ 
where.  The  lords  of  the  land  were  the  foes  of  the  arts. 
They  scorned  to  work  themselves,  and  they  despised  the 
men  who  worked,  but  in  some  way  their  own  needs  must  be 
met,  and  so  by  degrees  the  money  of  the  lords  raised  by 
taxes  or  pillage  passed  over  to  the  men  of  the  shop,  who 
furnished  the  former  their  silks  and  w'oollens,  their  gloves 
and  helmets,  their  arms  and  armor.  This  process  was  has¬ 
tened  by  the  compact  organization  of  the  trades  made  in 
the  time  of  St.  Louis.  Some  of  these  trades  were  then 
very  old.  “  The  marchands  d’eau  at  Paris  are  probably  the 
direct  descendants  of  the  Parisian  nautes .”  A  charter  of 
the  butchers  in  1134  speaks  of  their  “ancient  chopping- 
blocks.”  Leather-dressers,  purse-makers,  and  cobblers,  seem 
to  be  among  the  oldest.  St.  Louis  intrusted  to  Btienne 
Boyleau  of  Paris  to  make  rules  for  the  guidance  and  control 
of  all  the  different  artisans,  each  kind  becoming  thus  a  body 
by  itself  ;  and  his  “  Book  of  Trades,”  still  extant,  organizes 
and  subjects  to  rules  more  than  100  separate  industries 
as  then  practised.  These  rules  are  minute,  cumbersome, 
and  would  now  be  intolerable,  but  they  had  this  gain, 
that  they  strengthened  by  discipline  and  union  under  royal 
authority  the  middle  and  lower  classes  as  against  the  lords 
of  the  soil ;  and  these  now  organized  trades  in  turn  gave 
great  strength  to  the  communes ,  as  the  town  governments 
in  France  were  then  and  are  still  called.  The  communes 
became  gradually  freed  from  the  feudal  lords  in  like  ways 


84 


POLITICAL  ECONOMY. 


with  the  towns  in  England,  and  so  little  by  little  as  liberties 
inereased  became  what  they  now  are, — the  seats  of  busy 
exchanges.  The  oldest  commune  is  that  of  Mans,  formed 
by  revolt  from  William  the  Conqueror  in  1067.  Three  hun¬ 
dred  years  later  they  became  of  great  importance  all  over 
France,  and  after  much  decline  were  reorganized  by  law  in 
1791,  and  are  now,  35,985  in  number  since  the  loss  of  Alsace 
and  Lorraine,  the  vital  units  of  administrative  government. 

In  this  long  stretch  of  more  than  1100  years  no  great 
names  shine  forth  to  illumine  Political  Economy.  No  Aris¬ 
totle  and  no  Adam  Smith  appear  in  the  life-time  of  the 
Greek  Empire.  No  great  interest  seems  to  have  been  felt 
by  anybody  in  the  inmost  nature  of  those  commercial  trans¬ 
actions  that  were  then  multiplying  in  all  the  nations  of 
Europe.  Perhaps  the  most  memorable  words  in  an  economi¬ 
cal  point  of  view  that  meet  us  in  this  long  interval  are  those 
of  a  Venetian  doge,  Thomas  Moncenigo,  spoken  to  the 
Grand  Council  in  1421  :  —  “  You  are  the  only  ones  to  whom 
land  and  sea  are  equally  open.  You  are  the  channel  of  the 
opulence,  and  the  providers  for  the  wants,  of  the  entire  world. 
The  whole  universe  is  interested  in  your  fortune.  All  the 
gold  of  the  world  comes  to  you.  Fortunate,  so  long  as  you 
hold  to  pacific  ideas ,  while  all  Europe  is  on  fire.  As  for 
me,  so  long  as  there  remains  in  me  a  breath  of  life,  I  will 
persist  in  this,  that  we  must  love  peace.  What  will  you 
sell  to  those  of  Milan,  when  you  shall  have  ruined  them? 
What  will  they  he  able  to  give  you  in  exchange  for  your 
products ?  And  your  products,  what  will  become  of  them 
in  the  exigencies  of  a  war  ichich  will  encroach  on  the  capital 
you  need  to  create  them  ?  I  have  always  tried  to  take  meas¬ 
ures  that  the  interest  of  the  loans  and  all  public  expenses 
'  be  promptly  met  every  six  months,  and  I  have  had  the  good 
fortune  to  succeed.  If  you  continue  in  this  course,  you 
will  become  formidable,  and  the  possessors  of  all  the  riches 
of  the  Christian  world.  God  will  punish  you  for  touching 
the  property  of  others,  and  for  making  war  unjustly.  Then 


HISTORY  OF  THE  SCIENCE. 


35 


those  who  had  10,000  ducats  will  have  no  more  than  1,000, 
and  those  who  had  ten  houses  will  be  reduced  to  one.  No 
more  property ,  no  more  credit ,  no  more  reputation.  From 
the  masters  that  you  were,  you  will  find  jamrselves  .subjects, 
and  of  whom  ?  Of  military  men ,  of  soldiery ,  of  those  bands 
whom  you  are  keeping  in  pay.” 

One  little  treatise,  however,  written  in  13G0  by  a  French 
bishop,  Nicole  Oresrne,  marks  for  our  science  one  bright 
spot  in  the  Middle  Age.  It  is  a  Latin  tract  on  Money,  which, 
after  having  been  long  lost  to  the  world,  was  discovered 
about  the  middle  of  the  19th  centuiy  by  the  German  econo¬ 
mist,  Roscher,  and  translated  into  French  by  another  econ¬ 
omist,  Wolowski.  The  good  bishop  was  moved  to  his  w'ork 
by  the  wretched  state  of  the  coins  of  France  in  his  time. 
“The  origin,  nature,  right,  and  changes  of  Moneys  ”  is  the 
title  of  the  tract,  and  it  shows  signs  both  of  learning  and  of 
scientific  analysis.  An  error  of  Aristotle  is  reproduced  in 
it  under  the  same  rhetorical  figure  ;  —  “It  is  monstrous  and 
contrar}"  to  nature,  that  a  barren  stock  should  give  birth, 
that  a  thing  sterile  in  its  whole  being  should  fructify  and  be 
multiplied  from  itself,  and  such  a  thing  is  money.”  A  ran¬ 
dom  dictum  of  Aristotle  made  the  taking  of  interest  on 
money  seem  wrong  to  some  for  a  couple  of  millenniums. 
Even  Shakspeare  catches  up  the  old  figure  :  —  “  Is  your  gold 
and  silver  ewes  and  rams  ?  ’  *  Shylock  answers  :  “7  can¬ 
not  tell ;  I  make  it  breed  as  fast.”  Oresme  understood  well 
the  principle  of  seignorage  ;  —  “  As  money  itself  belongs  to 
the  community,  so  it  should  be  fabricated  at  the  expense 
of  the  community.”  He  knew  well  also  the  great  truth,  that 
was  constantly  broken  by  the  princes  of  his  time,  that  the 
worth  of  coins  hangs  only  on  the  purity  and  weight  of  the 
precious  metal  contained  in  them. 

Perhaps  in  consequence  of  the  dearth  of  any  deep  thought 
on  our  theme  during  the  Middle  Age,  the  germs  then  become 
visible  of  the  second  Theory  of  Sales.  It  is  called  the  Mer¬ 
cantile  System.  It  was  not  known  under  that  name,  nor 


86 


POLITICAL  ECONOMY. 


was  it  developed  in  any  fulness,  until  the  next  age  ;  but  we 
can  detect  its  beginnings  before  the  fall  of  Constantinople 
both  in  Italy  and  in  France.  It  is  an  illustration  of  the  con- 
tinuity  of  human  thinking  as  well  in  wrong  as  in  right  direc¬ 
tions,  that  the  second  theory  is  a  prolongation  and  expansion 
of  the  first.  That  gave  an  undue  weight  to  g61d  and  silver 
over  other  goods  in  trade,  and  forbade  their  export :  this  did 
the  same  thing  too,  but  also  tried  to  swell  the  exports  of 
other  goods  beyond  the  worth  of  current  imports,  so  as  to 
get  a  balance  of  gold  and  silver  paid.  Gold  and  silver  are 
the  things  to  get;  they  are  tuorth  more  than  what  they  will 
buy :  therefore ,  let  us  get  all  of  these  in  that  we  can,  and  let 
as  little  of  them  out  as  we  can ;  and  let  us  work  all  our  trade 
so ,  that  others  shall  have  to  give  us  a  balance  back  in  gold 
and  silver.  These  false  postulates  and  inferences  wrought 
centuries  of  woe  in  the  world  of  commerce.  The  great  facts 
will  come  in  on  a  later  page  ;  we  look  now  only  at  the  germs 
of  a  bad  growth.  Phillippe  le  Bel  of  France,  in  ordinances  of 
1303  and  1304,  put  his  hand  in  as  king  to  mend  the  move¬ 
ments  of  trade,  to  forbid  the  export  of  gold  and  silver,  to  fix 
the  price  of  wheat  and  to  forbid  its  export,  and  to  lessen 
imports  by  prohibitions.  “  Considering  that  our  enemies 
might  profit  by  our  provisions ,  and  that  it  is  also  important 
to  leave  them  their  merchandise ,  we  have  ordered  that  the 
former  shall  not  be  exported  nor  the  latter  imported .”  So 
Venice,  which  had  started  in  freedom,  declined  into  re¬ 
straints.  The  port  was  open  to  the  goods  of  the  world,  but 
only  Venetian  ships  with  Venetian  captains  could  bring  them 
in.  Foreigners  could  neither  build  nor  buy  ships  in  Venice, 
and  must  pay  eustoms-duties  twice  as  high  as  natives.1 

5.  In  any  sketch  of  the  buying  and  selling  of  the  modern 
nations,  and  of  the  thoughts  of  their  citizens  in  relation  to 
that,  there  are  good  grounds  which  will  appear  as  we  go  on 

1  Green’s  England,  i.,  in.,  chaps,  i.-iv. ;  Gibbon’s  D.  and  F.  vii.  99,  and  x.  110; 
Blanqui,  Hist.  I’ol.  Econ.  passim  in  chaps,  xii.-xx.;  McCulloch’s  Com.  Diet.,  Arts. 
Wool  and  Silk;  Appletons’  Cyclo.,  Arts.  Commune,  Cordova,  and  Italy;  and  Web 
ster’s  Diet,  sub  verbis  Milliner  and  Florin. 


HISTORY  OF  TIIE  SCIENCE. 


37 


for  putting  France  first  in  the  list.  The  French  are  apt  to 
do  well  what  they  think  worth  doing  at  all,  and  to  say  well 
what  they  think  worth  saying  at  all.  Like  other  nations, 
they  have  made  vast  economical  mistakes  in  the  modern  age, 
but  also  they  have  made  contributions  to  our  science  of  the 
first  importance.  The  Protestant  Reformation,  which  tended 
to  reform  industry  as  well  as  religion  and  demanded  the 
right  to  work  and  sell  as  well  as  to  think  and  pray,  did  not 
do  so  much  for  France  as  for  Germany  and  the  Low  Coun¬ 
tries,  in  which  latter  and  in  Spain  the  reactionary,  cen¬ 
tralizing,  and  tyrannical  policy  of  Charles  V.  and  his  worse 
successor  put  back  the  hand  on  the  dial  of  progress.  Still 
the  Huguenots  invented  great  improvement  in  agriculture 
and  manufactures  ;  and  both  before  and  after  the  revocation 
of  the  Edict  of  Nantes  in  1685  carried  these  improvements 
to  Flanders,  England,  Switzerland,  Prussia,  New  England, 
Virginia  and  South  Carolina.  The  silk  culture  had  come 
over  into  France  from  Italy  in  the  40  years  ending  in  1520, 
and  had  found  a  home  especially  in  Tours,  Lyons,  and  the 
towns  of  Provence ;  and  after  the  revoking  of  the  edict  of 
toleration,  this  industry  among  many  was  carried  abroad. 
About  50,000  Huguenots  settled  in  England,  and  those  who 
knew  the  silk  business  gathered  in  Spitalfields,  where  they 
introduced  very  soon  several  new  branches  of  the  art,  though 
England  then  admitted  silks  freely  from  all  the  world.  In 
Prussia  they  set  up  works  (new  there)  for  making  cloth, 
serges,  bunting,  small  goods,  druggets,  stockings  woven  on 
frames,  caps,  and  hats  made  of  skins,  and  dyes  of  all  kinds, 
while  Berlin  took  the  goldsmiths,  jewellers,  clockmakers  and 
sculptors;  in  the  Netherlands  they  cultivated  tobacco,  and 
made  of  the  sandy  lands  excellent  kitchen  gardens  for  fruits 
and  vegetables  ;  and  into  this  country  they  brought  the  olives, 
the  mulberry,  varieties  of  pears  still  cultivated,  and  advanced 
modes  of  farming. 

Just  as  some  individuals  in  all  times  have  thought  it  wise 
to  try  to  cheat  others  in  trade,  and  so  get  the  whole  gain  to 


38 


POLITICAL  ECONOMY. 


themselves,  so  some  nations  have  worked  for  long  stretches 
of  time  to  handle  their  trade  in  such  a  way  as  to  get  to  them¬ 
selves  the  sole  profit,  forgetting  the  grand  truth  that  all 
trade  alike  —  whether  domestic  or  foreign  —  must  be  fair  to 
both  sides  and  mutual  in  its  gains,  or  else  it  will  cease  of 
itself.  France  seems  to  have  been  the  first  nation  to  try 
this  trick  on  a  great  scale,  and  thus  to  give  voice  and  form 
to  the  Mercantile  System.  In  the  very  year  (1572)  of  the 
massacre  of  the  Huguenots,  and  in  the  city  (Paris)  which 
was  its  chief  scene,  and  by  the  king  (Charles  IX.)  who  was 
the  chief  actor  in  it,  was  issued  the  following  decree  :  —  “  In 
order  that  our  said  subjects  may  better  devote  themselves  to 
manufacture  arid  working  in  wools ,  flax,  hemp  and  yarns, 
which  are  increasing  and  abound  in  our  said  kingdoms  and 
countries ,  and  may  make  and  realize  the  profit  from  them 
which  foreigners  do,  who  come  here  and  buy  them  usually  at  a 
low  price,  transport  them  and  work  them  up,  and  afterward 
bring  the  cloths  and  linens  which  they  sell  at  a  very  high 
price;  we  have  ordered  and  do  order  that  it  shall  hereafter 
be  alloivable  to  no  one  of  our  said  subjects  and  foreigners 
•  for  any  cause  or  under  any  pretext  whatsoever  to  trans¬ 
port  out  of  our  said  kingdom  and  country  any  icools,  flax , 
liemp  or  yarns.  We  also  very  expressly  forbid  cdl  entrance 
into  this  our  said  kingdom  of  all  cloths,  linens,  gold  or 
silver  laces  and  ribbons,  as  well  as  all  velvets,  satins,  damasks, 
taffetas,  camlets,  linens,  and  all  sorts  of  stuffs  striped  or  having 
in  them  gold  or  silver,  and  likewise  all  harness  for  horses , 
belts,  swords,  and  dirks,  spurs  silvered  or  engraved,  and 
stirrups,  under  penalty  of  confiscation  of  said  merchandise 
The  Protestant  Sully,  the  finance-minister  of  the  French 
king  Henry  IV.,  seems  to  have  been  the  first  man  in  high 
authority  who  studied  thoroughly  the  whole  subject  of  buy¬ 
ing  and  selling,  who  devised  a  set  of  practical  rules  for  the 
guidance  of  his  policy  in  regard  to  these,  and  who  was  in 
position  in  spite  of  many  hindrances  to  carry  his  policy 
into  execution.  He  had  some  very  good  points,  and  some 


ms  TOBY  OF  THE  SCIENCE. 


39 


very  bad  ones,  and  the  two  were  well  mixed  up  in  liis  sys¬ 
tem.  Of  the  first  sort  were  these :  —  lie  thought  that  the 
debts  of  the  State  should  be  managed  just  like  those  of  an 
individual,  that  is  to  say,  paid  off  in  the  shortest  practicable 
time,  and  so  his  first  care  as  minister  was  to  ascertain  their 
exact  amount  —  332,000,000  francs  in  1595  —  and  to  reduce 
and  relict  taxes  on  his  principle  that  the  people  must  pros¬ 
per  in  order  that  the  revenue  may  be  large,  and  then  to  pay 
off  the  entire  debt,  which  he  did  in  a  few  years.  He 
thought  the  ways  of  letting  money  out  of  the  treasury  quite 
as  important  as  the  ways  of  getting  it  in,  and  amid  great 
opposition  he  stopped  the  leaks  in  the  treasury,  and  was 
perhaps  the  first  to  lay  down  the  maxim  that  specific  parts 
of  the  revenue  must  be  rigidly  applied  to  specific  parts  of 
the  expenses,  a  method  now  praised  and  practised  in  the 
United  States.  He  thought  that  better  means  of  internal 
transportation  would  foster  the  growth  of  France,  and  so  he 
improved  the  highways  and  organized  post-houses  along 
them  with  relays  of  horses  for  travellers,  and  dug  the  first 
canal  in  France  —  the  canal  de  Briare  opened  in  1G42  —  to 
connect  the  Seine  and  the  Loire,  and  lie  also  placed  public 
barges  on  the  main  rivers.  He  thought,  too,  that  agriculture 
lay  at  the  root  of  national  opulence,  and  so  he  suppressed 
tolls,  removed  various  obstructions,  and  made  free  the 
domestic  trade  in  grain.  Of  the  second  sort  were  these  :  — 
He  thought  that  manufactures  were  parasites  on  the  State, 
and  quarrelled  with  his  king  about  the  mulberry  trees  and 
the  silk  fabrics  that  were  then  coming  into  prominence  in 
France,  and  combined  with  a  sort  of  Aristotelian  aversion 
to  mechanical  labor  a  kind  of  stoic  indifference  to  articles 
of  comfort  and  luxury.  He  thought  that  France  was  suffi¬ 
cient  unto  itself  in  trade,  and  so  sought  to  suppress  within 
the  realm  the  circulating  moneys  and  commodities  of  other 
nations,  saying  with  short-sighted  folly,  —  “It  is  still  more 
necessary  to  do  without  the  commodities  of  our  neighbors, 
than  without  their  money ;  the  necessity  people  impose  on 


40 


POLITICAL  ECONOMY. 


themselves  of  dressing  in  certain  materials  rather  than 
others  is  only  a  fault  of  our  fancy,  but  the  price  we  pay  for 
them  is  a  wrong  done  to  ourselves  with  full  knowledge  of 
the  case.”  He  thought  consequently  that  gold  and  silver 
ought  not  to  be  exported  from  Fiance,  and  punished  severely 
the  taking  them  out,  and  passed  sumptuary  laws  to  reduce 
public  and  private  expenses,  and  kept  up  the  toll-barriers  on 
the  Rhone  to  keep  out  the  commodities  of  Italy,  and  became, 
in  short,  a  stern  propagator  of  the  Mercantile  System,  the 
principle  of  which  system  was  never  better  expressed  than 
by  a  Spaniard,  Ustariz,  in  1740,  —  “  It  is  necessary  rigor¬ 
ously  to  employ  all  the  means  that  can  lead  us  to  sell  to  for¬ 
eigners  more  of  our  productions  than  they  will  sell  us  of 
theirs ,  as  that  is  the  whole  secret  and  the  sole  advantage 
of  trade.”  Sully  also  drew  a  false  analogy  between  the 
materials  of  war  and  a  stock  of  coin  in  the  coffers  of  the 
State,  and  so  had  vaults  made  in  the  Bastile  into  which 
he  gathered  as  .a  reserve  for  contingencies  a  sum  which 
amounted  at  the  death  of  Henry  IV.  in  1G10  to  42,000,000 
francs.  Henry  was  riding  to  visit  Sully,  then  sick,  when 
his  life  was  cut  short  by  the  dagger  of  the  fanatic  Ravaillac 
in  one  of  the  narrow  streets  of  Paris. 

Two  years  after  Sully  ceased  to  be  minister,  that  is,  in 
1613,  the  earliest  general  treatise  on  our  theme,  and  the  first 
to  bear  the  title  of  Political  Economy,  was  issued  at  Rouen 
by  Antoine  de  Montchrestien.  He  combats  some  of  the 
points  of  that  minister,  while  he  treats  at  length  of  the  util¬ 
ity  of  the  mechanic  arts,  the  regulation  of  manufactures, 
the  trades  most  important  to  communities,  commerce,  trans¬ 
portation,  and  Money. 

If  we  balance  in  our  minds  the  good  done  by  Sully  with 
the  evil,  and  close  the  process  perhaps  in  a  doubt,  there  can 
be  no  doubt  at  all  that  the  good  done  by  Colbert,  the  greater 
minister  of  Louis  XIV.,  far  outweighed  the  evil.  Sprung 
from  a  race  of  merchants,  himself  apprenticed  young  to  a 
woollen-draper,  of  a  slow  but  grasping  mind,  hungry  for 


HISTORY  OF  TnE  SCIENCE. 


41 


facts  and  able  to  interpret  them,  orderly  in  plan  and  bold 
as  a  lion,  Colbert  will  always  be  a  great  figure  in  French 
history  and  economy.  The  last  words  of  the  great  Cardinal 
Mazarin  to  the  young  Louis  were:  —  “Sire,  I  owe  every 
thing  to  you  ;  but  I  pay  my  debt  to  your  Majesty  by  giving 
you  Colbert.”  Like  Sully,  Colbert  looked  at  all  things 
from  the  practical  side  ;  unlike  him,  who  was  of  noble  birth, 
Colbert,  who  had  brains  and  not  birth,  was  vexed  in  all  his 
course  by  those  who  had  birth  but  lacked  brains.  Even  his 
king,  who  placed  him  in  1661  in  virtual  charge  of  the  trade 
and  faxes  of  France,  gave  him  full  support  but  for  eleven 
years,  and  for  eleven  years  more  till  the  death  of  the  minis¬ 
ter  in  1683  paid  but  partial  heed  to  his  counsels.  His  grand 
and  simple  plans,  marred  by  one  grand  mistake,  were  car¬ 
ried  out  in  the  midst  of  and  in  spite  of  hostile  opinions, 
wasting  wars,  and  wavering  support. 

His  first  maxim  was,  to  reduce  and  simplify  the  internal 
taxes,  on  the  sound  principle  that  the  public  treasury  pros¬ 
pers  just  in  proportion  as  private  production  prospers. 
Says  Henri  Martin,  —  “We  are  struck  with  admiration  to 
see  Colbert  begin  by  reducing  an  impost  33  %,  on  the  in¬ 
creased  product  of  which  he  founded  in  great  part  his 
hopes.”  He  abolished  many  taxes  altogether,  and  made 
the  rest  bear  as  lightly  as  possible  on  the  poor.  The  result 
of  this  and  other  efforts  was,  that  whereas  he  found  the 
gross  revenue  82  millions  and  the  cost  of  collecting  it  more 
than  50  millions,  he  left  the  gross  revenue  113  millions  and 
a  cost  of  collection  26  millions,  an  exhausting  war,  too, 
having  intervened.  Another  maxim  wras,  to  revise  and 
reduce  the  swollen  claims  of  creditors,  to  lighten  the  com¬ 
munes  of  their  old  debts  and  forbid  their,  ip  cur  ring  new 
ones,  to  abolish  superfluous  offices  and  then  hold  each  offi¬ 
cial  to  a  strict  account,  and  thus  and  otherwise  to  lessen  the 
public  expenses  and  reform  the  administration.  A  third 
maxim  was,  to  encourage  agriculture  by  directly  lessening  its 
burdens,  by  permitting  the  freest  possible  circulation  of 


42 


POLITICAL  ECONOMY. 


its  produce  within  the  realm,  by  favoring  the  introduction 
and  increase  of  live  stock,  by  improving  all  the  old  ways  of 
communication,  and  by  creating  new  ones  such  as  the  great 
canal  of  the  Two  Seas.  A  fourth  maxim  was,  to  assure  all 
men  and  especially  all  traders  at  home  and  abroad  security 
of  person  and  property.  Sully  scorned  manufactures ; 
Colbert  justly  gloried  in  them,  and  outran  himself  and  the 
truth  of  his  system  to  enliven  and  diversify  them,  as  we 
shall  see.  Still  another  point  of  his  policy  may  be  given  in 
his  own  words:  —  “The  maritime  commerce  of  the  whole 
world  is  carried  on  with  about  20,000  ships.  In  the  natural 
order,  every  nation  should  have  its  share  in  proportion  to  its 
power,  the  number  of  its  people,  and  the  extent  of  its  sea- 
coast.  The  Dutch  have  15,000  or  10,000  of  this  number, 
and  the  French  500  or  600  at  the  most.  The  king  employs 
all  sorts  of  means  which  he  thinks  to  he  useful  in  order  to 
come  a  little  nearer  the  number  that  his  subjects  ought  nat~ 
urally  to  have.” 

Unfortunately  for  his  own  age  and  all  the  ages  since,  Col¬ 
bert  was  also  in  part  a  disciple  of  the  Mercantile  System. 
He  thought  that  he  could  so  manage  the  foreign  trade  of 
France  that  she  should  get  the  better  of  her  neighbors  :  he 
thought  he  should  be  able  more  or  less  to  drain  the  gold  and 
silver  from  *them  to  her.  Let  him  sum  up  his  plan  in  his  own 
words  :  —  “To  reduce  export  duties  on  provisions  and  manu¬ 
factures  of  the  kingdom  ;  to  diminish  import  duties  on  every 
thing  which  is  of  use  in  manufactures  ;  and  to  repel  the 
products  of  foreign  manufactures  by  raising  the  duties.’" 
This  is  the  mercantile  system  pure  and  simple :  the  end  in 
view  is  to  get  gold  and  silver  into  the  kingdom  by  selling 
much  merchandise  and  buying  little.  Curiously  enough  this 
plan  had  been  shown  to  be  delusive  in  all  its  parts  by  the 
petition  of  the  merchants  of  Paris  addressed  to  the  king  in 
1054,  ten  years  before  Colbert  embodied  his  plan  in  the 
tariff  of  1604.  “Sire,  experience  teaches  that  excessive 
taxes  have  never  increased  the  revenues  of  a  State,  because 


HISTORY  OF  THE  SCIENCE. 


43 


they  cause  a  loss  on  the  whole  of  what  is  gained  ot i  the  farts. 
In  fact,  only  commerce  and  manufactures  attract  the  gold  and 
silver  by  which  armies  subsist.  If  our  workmen  profit  by 
their  industry,  it  is  not  without  the  help  of  foreigners ,  who 
furnish  us  all  the  fine  wools,  for  we  have  only  coarse  ones, 
as  well  as  the  drugs  for  dyes,  the  spices,  sugars,  soaps  and 
leathers,  which  we  cannot  dispense  with  and  which  are  net 
found  in  the  kingdom.  Foreigners  will  not  fail  to  retaliate , 
by  laying  heavy  duties  on  all  these  commodities  ;  whence  it 

(will  come  to  pass  that  we  shall  obtain  no  more,  or  that  they 
will  prohibit  the  admission  of  our  manufactured  products ; 
consequently  our  workmen  will  be  without  employment ,  and 
the  number  of  useless  ones  and  of  beggars  will  increase.’ * 
Nevertheless,  Colbert’s  work  in  its  whole  aggregate  caused 

1  France  to  begin  to  prosper  mightily  ;  and  manufactures  in 
particular,  which  Sully  had  frowned  on,  seemed  to  feel  the 
impulse  of  the  new  policy  ;  and  Colbert  was  led  on  by  this 
mere  seeming  to  lay  down  the  third  historical  Theory  of 
Sales,  namely,  what  has  been  called  the  Protective  System. 
His  tariff  of  1667  was  the  first  Protective  Tariff  so-called. 
That  is  to  say,  it  was  the  first  formal  schedule  of  tariff-taxes 
laid  for  the  avowed  purpose  of  cutting  off  competition  from 
home  manufacturers  in  order  to  raise  the  price  of  their  wares. 
This  scheme  grew  right  out  of  the  mercantile  s}Tstem,  and 
would  never  have  been  thought  of  but  for  that,  just  as  the 
mercantile  system  itself  grew  right  out  of  the  bullion  sys¬ 
tem,  and  would  never  have  been  thought  of  but  for  that. 
“Protection”  was  an  afterthought  in  its  very  birth  —  an 
outgrowth  of  a  confessedly  false  system.  >  The  effects  pre¬ 
dicted  by  the  Paris  petition  followed  at  once.  The  new 
tariff  shut  out  many  kinds  of  Dutch  goods  :  the  Dutch  argued 
and  expostulated  a  while  in  vain,  and  then  acted:  French 
wines,  brandies,  and  manufactures  were  shut  out  of  Holland 
by  the  same  means.  Henri  Martin,  with  whom  Colbert  is 
a  hero,  acknowledges  these  natural  consequences  of  his 
action.  Agriculture,  which  had  had  a  hard  blow  on  one 


44 


POLITICAL  ECONOMY. 


cheek  by  the  prohibition  to  export  grain  as  a  part  of  the 
mercantile  policy,  now  took  another  hard  blow  on  the  other 
cheek  by  the  loss  of  the  market  for  wines  and  brandies  as  a 
part  of  the  protective  policy.  War  soon  followed  with  Hol¬ 
land, —  the  first  of  a  long  series  of  commercial  wars  that 
have  cost  plenty  of  blood  and  tears. 

It  is  said  of  the  vegetable  world,  that  the  poison  and  its 
antidote  often  grow  near  each  other  in  space ;  at  any  rate, 
this  vitally  bad  principle  of  Colbert  was  corrected  in  whole¬ 
some  words  by  a  man  who  lived  near  to  him  in  time.  This 
was  Bois-Guillebert,  a  provincial  magistrate  of  Rouen.  He 
looked  at  things  on  the  theoretical  side.  So  far  as  it  now 
appears,  he  was  the  first  man  in  the  world,  who  gazed 
steadily  into  the  inmost  nature  of  trade  and  brought  back  a 
true  analysis  of  it.  In  the  midst  of  much  that  is  false  and 
more  that  is  crude,  we  find  in  the  books  of  this  shrewd  Nor¬ 
man  such  golden  sentences  as  these :  —  Every  seller  must  be 
a  purchaser,  and  every  purchaser  a  seller.  Every  exchange 
must  be  profitable  to  two  parties,  and  thus  be  in  the  genera’ 
interest.  The  liberty  and  competition  of  producers  is  re¬ 
quisite  to  the  interest  of  all.  When  the  cultivator  of  the 
soil,  the  base  of  society,  grows  poorer,  his  poverty  involves 
the  ruin  of  the  rest.  The  interest  is  one,  not  only  of  man 
with  man,. of  province  with  province  in  the  same  state,  but 
also  of  nation  with  nation.  Nature  demands  the  liberty  of 
industry,  and  this  liberty  alone  can  paralyze  the  efforts  of 
special  cupidity  and  selfishness.  To  Nature  and  not  to  men 
belongs  the  police  of  the  economic  order. 

France  kept  slipping  back  all  the  time  from  the  reforms 
of  Colbert,  the  privileged  classes  kept  themselves  exempted 
from  most  of  the  burdens  of  the  State,  abuses  in  taxation 
and  administration  multiplied,  till  a  hand,  that  had  already 
traced  with  wonderful  skill  the  exterior  defences  of  France 
in  war,  traced  also  in  peace  her  internal  condition  in  these 
lines:  —  “Nearly  a  tenth  part  of  the  people  is  reduced  to 
mendicity ;  of  the  nine  remaining  parts,  five  can  give  no 


HIS  TOE  Y  OF  THE  SCIENCE. 


45 


alms  to  the  first,  from  which  they  scarcely  differ ;  three  are 
in  very  straitened  circumstances  ;  the  tenth  does  not  number 
over  a  hundred  thousand  families,  of  which  there  are  not  ten 
thousand  that  are  completely  at  ease.”  That  hand  was 
Vauban’s,  a  man  better  known  as  a  worker  and  writer  on 
Fortifications,  but  who  also  must  always  be  named  with 
honor  in  any  sketch  of  Economics.  What  he  had  seen  in 
every  part  of  France  where  he  had  planted  a  fort  to  defend 
it  stirred  him  to  write  a  book  which  he  entitled  the  Royal 
Tithe,  the  principle  of  which  was,  that  every  subject  in  the 
realm  ought  to  contribute  to  the  needs  of  the  State  in  pro¬ 
portion  to  his  income,  that  all  the  hitherto  privileged  nobles 
and  clergy  should  pay  this  tax  with  the  common  people,  that 
this  should  be  the  only  direct  tax  in  the  kingdom  thus  re¬ 
leasing  an  army  of  the  old  tax-gatherers,  and  that  the  rate 
of  it  should  slide  according  to  the  needs  of  the  treasury  from 
the  semi-tithe  or  one-twentieth  (artisans  and  laborers  paying 
only  one-thirtieth)  to  the  entire  tithe  or  tenth  in  case  of 
necessity.  The  taxes  at  that  time  came  wholly  out  of 
capital ,  and  for  the  most  part  out  of  the  capital  of  the  poor : 
Vauban  would  take  them  wholly  out  of  revenue ,  and  from  all 
classes  of  the  people  who  had  revenue.  This  plan  of  taxing 
was  simple  and  grand  and  just,  and  for  that  very  reason  was 
condemned  by  the  royal  council  in  the  year  of  its  author’s 
death  (1707). 

France  worried  along,  most  things  getting  from  bad  to 
worse,  in  spite  of  brilliant  philosophies  and  an  elegant  litera¬ 
ture,  without  much  that  was  new  on  our  theme,  till  in  the 
first  decade  of  the  second  half  of  the  eighteenth  century, 
Quesnay,  physician  and  surgeon  and  friend  to  Louis  XV., 
developed  a  set  of  economic  doctrines  very  celebrated  in 
their  time  and  influential  in  results  in  all  time  since.  The 
numerous  disciples  of  these  doctrines,  with  their  teacner, 
constituted  the  first  great  School  in  Political  Economy,  and 
are  called  sometimes  “Economists,”  sometimes  “Physio¬ 
crats,”  and  sometimes  (and  best)  the  “  Agricultural  School 


46 


POLITICAL  ECONOMY. 


There  had  been  every  now  and  then  an  outburst  of  common 
sense  against  the  protective  system  of  Colbert  and  the  re¬ 
taliations  of  foreigners  that  had  of  course  attended  it.  The 
tradition  is,  that  the  merchant  Legendre  had  replied  to  Col¬ 
bert  himself,  when  the  minister  asked,  “  What  can  we  do  to 
aid  you?”  “  Lais  sez  fair  e”  —  Let  us  alone.  Gournay, 
the  intendant  of  commerce,  himself  a  merchant,  the  friend 
and  helper  of  Quesnay,  is  the  real  author  of  the  celebrated 
saying,  —  Laissez  faire  et  laissez  passer ,  —  Let  us  alone 
and  keep  the  ways  eree.  Gournay  attacked  the  restric¬ 
tions  of  that  day  on  the  commercial  side,  Quesnay  on  the 
agricultural  side,  and  thus  they  worked  together,  while  the 
great  Turgot  became  the  disciple  of  them  both.  There  had 
been  some  reaction  all  along  from  the  artificial  manufactures 
of  Colbert  towards  the  earlier  and  simpler  maxim  of  Sully, 
—  u  Tillage  and  pasturage  are  the  two  breasts  of  the  State  ;  ” 
then  the  collapse  of  John  Law’s  famous  credit-system  in 
1720,  and  the  loss  thereby  of  nearly  all  fortunes  except 
those  invested  in  lands  ;  and  then  the  subdivisions  and  im¬ 
provements  in  lands  consequent  on  Law’s  gigantic  opera¬ 
tions,  —  all  these  had  caused  the  French  to  look  away  from 
the  more  transient  values  of  credit  and  merchandise  to  the 
most  stable  of  all  possessions,  the  land  on  which  they  trod. 
The  way  was  thus  prepared  for  Quesnay,  who  was  son  of  a 
small  land-proprietor  and  advocate,  and  who  carried  his 
simple  tasks  and  interest  in  rural  matters  through  a  long  life 
at  Versailles. 

Quesnay’ s  whole  system  was  broader  than  any  mere  eco¬ 
nomic  system  can  be,  in  that  it  involved  a  system  of  Society 
and  of  Government  as  well  as  of  Econom}T,  in  which  last 
respect  alone  we  are  now  to  look  at  it.  Quesnay  saw  in  the 
agriculture  of  his  time,  what  has  been  seen  in  the  agriculture 
of  all  times,  that  the  produce  of  the  land,  after  paying  the 
immediate  expenses  of  its  cultivation  to  the  man  who  tilled 
it,  afforded  also  an  additional  sum  in  the  shape  of  rent  to 
the  man  who  owned  the  land.  This  additional  sum  he  called 


EISTOBY  OF  TUE  SCIENCE. 


47 


Net  Product.  On  the  other  hand,  he  saw  that  mere  labor 
put  forth  on  any  thing  else  than  land  only  obtained  fair 
wages  for  itself  without  any  net  product  remaining.  There¬ 
fore  he  called  labor  put  forth  on  the  land  Productive,  and  all 
other  labor  Unproductive,  not  because  the  latter  is  not  use¬ 
ful,  but  because  there  is  nothing  in  the  result  over  and  above 
a  return  for  the  labor.  What  he  failed  to  see  was,  the 
difference  between  the  results  of  labor  assisted  by  capital 
and  those  of  labor  not  so  assisted.  In  truth,  he  utterly 
mistook  the  nature  of  rent.  As  we  shall  see  by  and  by,  land 
is  only  a  form  of  capital,  and  the  rent  paid  for  its  use  is 
nothing  but  profit  to  the  owner  of  this  capital,  so  that  in 
reality  the  produce  of  the  land  pays  for  wages  and  profits 
and  nothing  more.  All  other  products  made  by  the  union 
of  labor  and  capital  must  do  the  same  or  cease  to  be  made. 
There  is,  then,  no  such  distinction  as  that  drawn  by  Qucsnay 
between  Productive  and  Unproductive  labor,  and  there  is  no 
net  product  at  all,  such  as  he  supposed.  But  if  there  were, 
then  it  would  follow  from  that,  (1)  that  the  only  new  values 
possible  must  come  out  of  the  earth  itself  ;  (2)  that  the  pro¬ 
prietors  of  the  soil  are  a  special  class  of  men  by  themselves ; 
(3)  that  all  taxes  to  government  should  be  paid  by  them 
alone,  since  no  others  have  any  net  product ;  (4)  that  every 
restriction  on  the  sale  of  produce  at  home  and  abroad  should 
be  removed  as  lessening  the  net  product ;  (5)  that  all  at¬ 
tempts  to  foster  manufactures  artificially  are  worse  than 
futile  as  involving  no  possible  gain,  and  that  every  obstacle 
to  the  freest  sale  of  mere  labor  and  its  results  should  every¬ 
where  be  abolished  at  once.  These  economic  inferences,  as 
well  as  others  both  social  and  political,  were  drawn  out 
logically  from  the  premises.  While  the  system  had  plenty 
of  errors  in  it,  it  had  also  this  grand  truth,  that  all  value 
turns  on  exchange.  Quesnay  says:  —  “We  must  distin¬ 
guish  between  Liens  (goods),  which  have  value  in  use  and 
not  value  in  exchange,  and  ricliesse  (salable  things),  which 
have  both  value  in  use  and  value  in  exchange.  For  example, 


48 


POLITICAL  ECONOMY. 


the  savages  of  Louisiana  enjoy  many  biens ,  such  as  wood, 
game,  fruits  of  the  earth,  which  are  not  richesse  because  they 
have  no  value  in  exchange.”  So  Le  Trosne,  one  of  Ques- 
nay’s  many  disciples,  says  :  —  “Value  consists  in  the  relation 
of  exchange  which  exists  between  such  and  such  products. 
In  a  word,  the  quality  of  richesse  supposes  not  only  a  useful 
property,  but  also  the  possibility  of  exchange,  because  value 
is  nothing  but  the  relation  of  exchange.  The  earth  iu  truth 
only  gives  products  which  have  the  physical  qualities  to 
satisfy  our  wants  ;  it  is  exchange  that  gives  them  value ;  a 
quality  relative  and  accidental.  But  as  it  is  the  products 
themselves  which  are  the  sole  matter  of  exchange,  it  follows 
that  we  can  say  with  truth  that  it  is  the  earth  that  produces 
not  only  all  biens  but  also  all  richesse .” 

The  whole  school  made  a  botch  of  the  bad  word  “  wealth,” 
and  wrongly  drew  from  their  wrong  main  point  that  material 
things  alone  are  valuable,  forgetting  that  even  the  ancients 
conceded  that  labor  may  be  sold  and  rights  may  be  sold  in 
the  same  way  as  material  things  are  sold.  Their  otherwise 
clear  vision,  however,  emancipated  them  from  most  of  the 
errors  of  those  who  had  gone  before,  at  once  from  the  bullion 
theory,  the  mercantile  theory,  and  the  protective  theory. 
Mercier  de  la  Riviere,  one  of  the  brightest  of  them,  well 
says  :  —  “  Let  me  be  permitted  to  repeat  here  that  money  does 
not  rain  down  into  our  hands ,  does  not  grow  in  our  fields ,  in 
nature.  To  have  money ,  we  must  buy  it;  and  after  that  pur¬ 
chase,  one  is  no  richer  than  he  was  before :  he  only  receives  in 
money  a  value  equal  to  that  he  has  given  in  merchandise.  An 
agricultural  nation  is  very  rich ,  people  tell  us,  when  we  see 
much  money  there ;  people  are  doubtless  right  in  saying  so, 
but  they  are  wrong  not  to  see  also  that  before  acquiring  that 
money  it  was  equally  rich,  since  it  possessed  the  values  with 
which  it  paid  for  the  money ;  it  cannot  even  enjoy  that  wealth 
in  money  without  making  it  forever  disappear,  unless  it  main¬ 
tains  it  by  the  reproduction  of  the  values  whose  sale,  or  rather 
exchange,  has  procured  for  it  money  wealth :  so  this  wealth 


HISTORY  OF  THE  SCIENCE. 


49 


In  money  is  only  a  secondary  wealth  representative  of  a  pri¬ 
mary  wealth  for  which  it  is  substituted.”  These  physiocrats 
were  every  one  champions  of  the  freedom  of  trade.  It  was 
a  maxim  with  Quesnay  :  —  “Let  entire  freedom  of  commerce 
be  maintained ;  for  the  truest,  surest,  and  most  profitable 
regulation  of  commerce,  both  internal  and  external,  consists 
in  entire  freedom  of  competition.”  Louis  XV.  called  Ques¬ 
nay  his  thinker  (penseur),  and  the  epithet  belongs  to  the 
school.  They  were  good  mew,  too,  disinterested,  philan¬ 
thropic,  and  moved  by  strong  sympatl^  for  the  masses  of 
the  people,  while  they  attacked  neither  throne  nor  altar. 
One  of  them,  the  elder  Mirabeau,  though  he  abused  his 
more  gifted  son,  called  himself  the  “friend  of  men,”  and 
put  the  work  of  Quesnay  in  point  of  benefit  to  mankind  on 
a  level  with  the  invention  of  money  and  the  invention  of 
printing. 

Before  Quesnay  died  at  80  years  of  age  in  1774,  he  had 
the  satisfaction  of  seeing  his  disciple  Turgot,  who  was  also 
the  friend  and  disciple  of  Gournay,  enter  the  government  as 
comptroller-general  of  finances,  and  begin  at  once  on  a  great 
scale  in  spite  of  tremendous  opposition  to  carry  into  practi¬ 
cal  effect  the  views  of  this  school.  The  first  fruit  of  physio- 
cratic  doctrine  was  the  announcement  of  future  freedom  of 
trade  in  grain,  both  internal  and  external.  This  gave  rise 
to  the  so-called  Flour  War.  Then  followed  an  edict  for  the 
abolition  of  all  compulsory  labor  for  the  state  or  for  feudal 
lords.  Says  Turgot:  —  “God,  by  giving  man  wants,  by 
rendering  the  resource  of  labor  necessary  to  him,  has  made 
of  the  right  to  work  the  property  of  every  man ;  and  that 
property  is  the  first,  the  most  sacred ,  the  most  imprescriptible 
of  all.”  Then  followed  an  edict  for  the  suppression  of 
masterships,  and  trade  corporations  of  all  kinds,  aud  con¬ 
firming  the  full  liberty  of  every  citizeu  to  undertake  any 
kind  of  manufacture  in  conformity  with  natural  right.  An¬ 
other  edict  made  the  commerce  in  wine  free  throughout  the 
kingdom  on  the  payment  of  a  moderate  tax.  Another  les- 


50 


POLITICAL  ECONOMY. 


sened  the  odious  salt-tax.  Still  another  proposed  x  single  tax 
on  land  in  lieu  of  some  other  existing  taxes.  Associated 
with  Turgot  in  the  administration  was  Malesherbes,  another 
physiocrat  with  similar  aims,  and  the  two  fell  together  in 
177G  before  the  united  opposition  of  the  official  and  privi¬ 
leged  classes  of  France.  Malesherbes  described  Turgot  as 
the  “  man  with  the  heart  of  L’ Ilopital  and  the  head  of 
Bacon;  ”  and  what  posterity  thinks  of  Malesherbes  may  be 
seen  in  the  broad  avenue  of  Paris  dedicated  to  his  name 
with  imposing  ceremonies  in  August,  18G1.  The  strong 
sway  over  men’s  minds  and  hearts  gained  by  this  great 
school  is  shown  alike  by  the  French  help  in  the  American 
War  of  Independence  and  by  the  steady  oncoming  of  the 
French  Revolution,  in  whose  councils  passed  the  decree  for 
the  equal  division  of  lands ,  which  has  been  the  strength  of 
France  ever  since. 

The  year  1776  is  a  great  year  in  the  history  of  Economics, 
as  it  is  also  in  that  of  Politics.  The  germs  of  both  the 
second  and  third  Schools  in  this  science  sprang  into  life  in 
that  year.  The  second  school,  which  we  shall  call  the 
Commodities  School ,  looks  to  Adam  Smith  as  its  founder, 
whose  book  was  published  in  that  year,  and  whose  views 
will  be  given  at  some  length  in  the  next  section.  It  is  best 
to  say  right  here,  that  the  second  school  is  the  offspring  of 
the  first,  just  as  the  second  theory  of  sales  is  the  outgrowth 
of  the  first.  Wonderful  is  the  continuity  of  science.  Adam 
Smith  is  the  child  of  Quesnay,  to  whom  he  would  have  dedi¬ 
cated  his  book  had  the  latter  lived  but  two  years  longer. 
What  Turgot,  however,  had  already  questioned,  Adam  Smith 
triumphantly  denied,  namely,  the  distinction  drawn  by  the 
first  school  between  Productive  and  Unproductive  labor. 
The  second  school  proved  beyond  a  doubt  that  artisans  and 
merchants  and  transporters  are  as  truly  productive  laborers 
as  the  agriculturalists,  but  at  the  same  time  they  included  in 
labor  only  effort  put  upon  material  and  tangible  commodities. 
They  proved  also,  contrary  to  the  views  of  the  first  school, 


HISTORY  OF  THE  SCIENCE. 


51 


that  in  all  sales  of  commodities  both  sides  make  a  gain , 
owing  to  the  diverse  desires  of  the  two  parties  to  the  sale. 
Both  schools  held  alike  for  free  trade  though  on  different 
scientific  grounds. 

The  same  year  Condillac,  very  distinguished  as  a  meta- 
physician,  issued  a  book  entitled  u  Commerce  and  Govern¬ 
ment  considered  relatively  to  each  other,”  which  was  not  a 
successful  work,  as  was  Adam  Smith’s,  but  in  which  he  laid 
the  foundations  of  the  third  and  only  remaining  School  of 
Economics,  which  we  propose  to  call  the  All  Sales  School. 
Condillac  had  been  trained  as  a  physiocrat  and  in  some  sense 
continued  such,  and  the  third  school  at  any  rate  grew  out  of 
the  first  school  just  as  indeed  the  second  school  did,  and  both 
in  something  the  same  way  as  the  second  and  third  theories 
of  sales  grew  out  of  the  first ;  but  he  was  also  a  metaphysi¬ 
cian  of  clear  thought,  and  saw  just  as  Adam  Smith  did  the 
futility  of  the  distinction  between  productive  and  unpro¬ 
ductive  labor,  and  the  certainty,  too,  that  in  sales  both  sides 
gain.  He  saw  also  the  great  truth  that  the  Desires  of  men 
are  alwajTs  the  starting-point  whenever  any  thing  becomes 
valuable,  and  concluded  from  this  that  value  resides  in  the 
Mind  only,  and  blamed  the  physiocrats  for  saying  that  value 
consists  in  the  relation  of  one  thing  exchanged  for  another, 
and  claimed  that  value  may  exist  before  an  exchange  takes 
place  so  soon  as  each  party  desires  the  product  of  the  other, 
thus  confounding  value  with  estimation ,  which  is  only  one  of 
its  elements.  Still,  as  value  in  his  sense  of  it  would  lead  to 
exchanges  or  sales,  he  defines  our  science  as  the  “  Science 
of  Commerce”  or  Exchanges.  This  is  a  great  merit.  Here 
is  a  definition  that  just  covers  (and  no  more)  the  field  of  the 
science.  His  notion  of  value  is  indeed  faulty,  as  we  shall 
see,  but  his  definition  of  the  science  will  never  be  improved 
upon  so  far  as  its  meaning  is  concerned.  Sales  may  be,  or 
may  not  be,  a  better  word  than  Commerce  or  Exchanges. 
The  definition  involves  that  any  thing  of  whatever  kind  ex¬ 
changed  for  something  else  comes  within  the  view  of  the 


52 


POLITICAL  ECONOMY. 


science,  and  thus  the  third  school  happity  escapes  the  limita¬ 
tions  of  the  two  others,  namely,  that  material  things  alone 
are  salable ;  although  Condillac  himself  did  not  fully  realize 
how  broad  and  strong  he  had  made  the  science,  and  contin¬ 
ued  to  talk  now  and  then  about  the  earth  as  the  source  of 
all  richesse  and  about  the  Net  Product  as  the  source  of  all 
taxation. 

On  came  the  French  Revolution  like  a  flood,  and  its  waters 
had  scarcely  subsided  when,  in  1803,  Jean-Baptiste  Say  issued 
his  book  on  Political  Economy,  which  has  continued  a  stand¬ 
ard  work*  almost  up  to  our  own  time.  He  is  a  great  light 
of  the  second  school ;  for  Adam  Smith’s  book  had  been 
translated  into  French  in  1781,  and  Say  is  an  admirer  and 
follower  of  Smith,  although  in  no  servile  way.  Without 
essentially  going  beyond  the  commodities  school,  Say  admits 
much  more  fully  than  Smith  does,  immaterial  services,  like 
those  of  a  physician,  into  his  category  of  richesse.  tie 
divides  his  treatise  into  three  parts,  the  Production  and  Dis¬ 
tribution  and  Consumption  of  richesse ,  borrowing  these  three 
terms  of  the  physiocrats,  but  unfortunately  treating  them, 
as  the  physiocrats  did  not,  as  if  each  of  these  indicated  a 
separate  and  independent  process.  With  the  physiocrats 
production  meant  the  extracting  of  raw  produce  out  of  the 
earth,  distribution  the  manipulating  and  transporting  it,  and 
consumption  the  final  sale  of  it,  —  all  really  one  indivisible 
process  which  they  properly  called  commerce  or  exchange. 
But  nearly  all  the  writers  of  the  second  school  have  followed 
the  bad  example  of  Say  in  this  respect,  and  some  of  them 
like  the  Walkers,  father  and  son,  in  this  country,  have  added 
a  fourth  division,  Exchange,  just  as  if  there  could  be  any 
production  and  distribution  and  consumption  without  ex¬ 
change.  The  progress  of  Political  Economy  on  both  sides 
the  ocean  has  been  much  kept  back  by  this  strange  abuse  of 
originally  safe  and  simple  pliysiocratic  terms.  Besides,  Say 
did  not  have  much  better  luck  with  his  word  1 4  richesse  ’  ’  as 
a  term  of  science  than  Adam  Smith  had  with  his  term 


HISTORY  OF  THE  SCIENCE. 


53 


“ wealth  ;  ”  for  which  neither  is  certainly  much  to  be  blamed, 
since  no  one  has  ever  tried  to  use  either  of  these  words  in 
science  without  making  a  hotch-potch  of  it.  Still,  in  addi¬ 
tion  to  a  clear  and  skilful  exposition  of  the  great  subject  in 
a  general  way,  Say  made  one  particular  contribution  to  it  of 
grand  importance.  He  demonstrated  fully  that  there  can 
never  be  a  general  glut  of  products  in  any  market,  because 
the  more  of  some  kinds  exposed  for  sale,  the  better  sale  of 
other  kinds  in  exchange  for  them.  He  says  :  —  u  A  product 
is  no  sooner  created \  than  it  affords  from  that  instant  a  mar¬ 
ket  for  other  products  to  the  full  extent  of  its  own  value. 
When  the  producer  has  put  the  finishing  hand  to  his  product , 
lie  is  most  anxious  to  sell  it  immediately  lest  its  value  should 
vanish  in  his  hands.  Nor  is  he  less  anxious  to  dispose  of  the 
money  he  may  get  for  it,  for  the  value  of  money  is  also  per¬ 
ishable.  But  the  only  way  of  getting  rid  of  money  is  in  the 
purchase  of  some  product  or  other.  Thus  the  mere  circum¬ 
stance  of  the  creation  of  one  product  immediately  opens  a 
vent  for  other  products.” 

When  Say  first  published  this  book  in  1803,  Frederic  Bas- 
tiat  was  a  boy  two  years  old  in  Bayonne.  Growing  up  in  a 
counting-room,  travelling  more  or  less  in  the  neighboring 
countries  with  both  eyes  open,  and  giving  all  his  leisure 
to  the  study  of  this  science  especially  after  1825,  Bastiat 
appeared  in  1844  and  onwards  till  his  death  by  consumption 
in  1850,  both  in  fugitive  writings  and  in  books,  as  a  champion 
with  the  keenest  blade  in  behalf  of  Property  as  then  men¬ 
aced  by  the  socialists,  and  in  behalf  of  Trade  as  always 
menaced  by  the  protectionists.  “Property  is  theft,”  cried 
Prudhon,  the  ablest  of  the  socialists :  on  the  contrary,  Bas¬ 
tiat  demonstrated  with  a  point  and  pungency  that  proved 
a  thorn  in  the  side  of  his  opponents,  that  Property  is  sacred 
in  the  hands  of  him  who  creates  it  or  buys  it,  and  that  it  is 
through  the  right  to  acquire  it  and  exchange  it  freely  that 
God  designs  the  progressive  amelioration  of  mankind.  These 
writings  were  indeed  rather  controversial  than  constructive. 


54 


POLITICAL  ECONOMY. 


and  Bastiat  himself  had  not  much  better  luck  than  others 
have  had  in  wrestling  scientifically  with  the  word  richesse ,  — 
athlete  as  he  was  he  was  thrown  in  that  encounter, — but  he 
gives  after  all  a  masterly  definition  and  exposition  of  Value, 
effectually  demolishes  the  vagaries  of  Communism,  and 
demonstrates  the  harmonious  mechanism  of  Society  so  far 
as  exchanges  are  concerned.  By  far  his  most  important 
work  is  the  Harmonies  economiques  left  incomplete  at  his 
death.  Ilis  debt  to  the  first  school  of  Political  Economy, 
the  physiocrats,  is  plain  enough,  since  his  definition  of  Value 
as  the  relation  between  two  services  exchanged,  and  his  dis¬ 
tinction  between  biens  and  ricliesse ,  are  in  substance  the 
same  as  theirs,  as  one  may  see  in  the  quotation  already  given 
from  Le  Trosne.  Ilis  debt  to  Condillac,  the  founder  of  the 
third  school,  is  plainer  still,  since  his  technical  terms,  such 
as  “desires,”  “estimations,”  “services,”  “satisfactions,” 
are  largely  the  same  as  Condillac’s,  and  since  the  two  alike 
exalt  the  action  of  the  Mind  in  all  matters  of  value,  and 
extend  the  science  so  as  to  cover  all  sales  whatever.  Bastiat 
belongs  fully  to  the  third  school.  His  debt,  however,  to  his 
own  genius  and  to  the  circumstances  of  his  own  time,  is 
plainest  of  all.  No  economic  writer  has  ever  shown  so 
much  literary  skill  as  he ;  very  few,  if  any,  have  surpassed 
him  in  clearness  and  power  of  thought.  His  wit  enlivened, 
as  his  analysis  illumined,  the  dark  places  of  the  general  sub¬ 
ject.  Ilis  special  contribution  to  it,  which  is  one  of  great 
importance,  may  be  given  in  his  own  words.  Though  Value 
cannot  exist  separately  from  human  efforts,  Utility,  or  the 
mere  capacity  to  gratify  some  desire,  may  reside  in  the  mate¬ 
rials  and  forces  of  Nature.  “  But  these  natural  forces  in 
themselves  and  apart  from  all  intellectual  and  bodily  exertion 
are  gratuitous  gifts  of  Providence ,  and  in  this  respect  they 
remain  destitute  of  Value  through  all  the  complications  of 
human  transactions .  This  is  the  leading  idea  of  the  present 
work.” 

For  our  present  purposes  there  is  no  need  of  going  into 


HISTORY  OF  THE  SCIENCE. 


55 


further  detail  in  regard  to  the  later  economists  of  France. 
There  have  been  a  great  number  of  these  of  sharp  intelli¬ 
gence  and  varied  view  up  to  our  own  time,  and  so  far  as 
they  have  confined  themselves  to  strictly  economic  discussion 
may  be  grouped  in  a  general  way  into  either  the  second  or 
third  school,  for  the  first  school,  influential  as  it  proved,  is 
dead  even  in  the  land  of  its  birth.  But  much  writing  that 
passes  as  economical  is  not  really  such.  As  Political 
Economy  is  the  science  of  Sales,  and  as  there  can  be  no 
full  stream  of  sales  where  the  right  to  the  varied  results  of 
past  or  present  work  for  use  or  sale  is  denied,  Communism, 
which  denies  the  benefits  of  private  property  and  demands 
community  of  goods  in  a  society,  and  Socialism,  which  hates 
capital  and  gives  to  present  work  dominion  over  the  accumu¬ 
lations  of  past  work,  are  in  all  their  manifestations  non¬ 
economic,  and  the  advocates  of  these  theories  push  themselves 
by  the  strokes  of  their  pens  out  of  the  pale  of  our  science. 
There  can  be  no  science  of  sales  with  those  who  strive  to 
give  economic  reasons  for  restricting  sales.  So,  also,  there  is 
a  large  number  of  otherwise  able  writers,  both  French  and 
other,  who  have  not  yet  learned  the  radical  difference  be¬ 
tween  Politics  and  Economics,  and  who  try  to  cover  both 

I  fields  with  one  science,  —  a  feat  that  cannot  be  done.  Poli¬ 
tics  is  a  far  wider  and  more  difficult  and  more  incomplete 
science  than  ours,  although  the  two  touch  each  other  at 
several  vital  points,  as  we  shall  see.  Social  Science  so- 
called  is  another  broad  subject  which  is  sometimes  con¬ 
founded  with  Political  Economy  to  the  great  detriment  of 
the  latter,  whose  sole  field  is  buying  and  selling.  Chevalier, 
professor  of  this  science  in  the  College  of  France,  a  friend 
and  disciple  of  Bastiat,  very  distinguished  for  his  part  in 
negotiating  the  commercial  treaty  with  England  in  I860,  and 
a  gifted  author  belonging  to  the  third  school ;  Wolowski,  a 

native  Pole  but  after  1834  a  naturalized  Frenchman,  a 

\ 

teacher  in  the  school  of  Arts  and  member  of  the  Academy 
of  moral  and  political  sciences,  the  founder  of  the  famous 


56 


POLITICAL  ECONOMY. 


scheme  of  Credit  fonder,  and  a  copious  writer  on  economic 
subjects ;  and  Leon  Say,  a  grandson  of  the  great  economist 
of  that  name,  a  long  time  the  minister  of  Finance,  and  per¬ 
haps  the  most  successful  handler  who  ever  lived  of  a  great 
nation’s  great  debts,  —  may  serve  as  specimens  merely  of  the 
French  economists  of  our  own  day. 

The  strong  drift  of  French  thought  has  been  towards  free 
trade  with  the  rest  of  the  world.  This  may  be  voiced  for  us 
by  the  celebrated  Fenelou  in  the  third  book  of  his  Tele- 
maque  :  —  “Above  cdl,  never  undertake  to  restrict  the  freedom 
of  commerce.  The  prince  must  never  interfere  with  it  for 
fear  of  restraining  it,  and  he  must  leave  all  the  profit  of  it  to 
his  subjects  who  have  the  labor  of  it ;  otherwise  he  ivill  dis¬ 
courage  them.  lie  will  derive  sufficient  advantage  from  it 
through  the  great  riches  which  ivill  enter  into  his  dominions. 
Commerce  is  like  unfailing  springs:  if  you  wish  to  change 
their  course,  you  will  drain  them.”  France  has  long  been 
and  is  now  a  country  prosperous  by  trade.  The  annual  aver¬ 
age  yield  of  wine  for  the  half-century  past  is  1,000  millions 
of  gallons,  rising  in  1875  to  near  2,000  millions  gallons,  but 
sinking  in  1880  to  675  millions  gallons  owing  to  the  ravages 
of  the  phylloxera,  the  insect-pest  of  the  vineyards.  About 
4%  of  this  wine  is  exported,  and  the  rest  is  sold  at  home. 
The  annual  production  of  silk  is  worth  1,000  millions  of 
francs.  In  1871-72,  France  paid  a  war-indemnity  to  Ger¬ 
many  of  5,000  millions  of  francs,  besides  spending  three- 
fifths  as  much  more  in  the  costly  struggle,  and  seemed  soon 
after  as  busy  and  prosperous  as  ever,  notwithstanding  the 
change  of  government  from  empire  to  republic.  These  were 
the  sums  managed  by  Leon  Say.  Before  the  decade  was 
over  the  annual  foreign  trade  of  France  amounted  to  more 
than  the  cost  of  that  war ;  and  the  ordinary  receipts  of  the 
treasury  were  2,575  millions  of  francs  in  1876. 1 

x  Henri  Martin’s  Age  of  Louis  XIV.,  vol.  i.  chaps,  i.,  ii.,  and  vii.;  Martin’s  De- 
c\  %  of  the  French  Monarchy,  vol.  ii.  chaps,  iii . ,  v.,  and  vii.;  Laveleye’s  New  Ten¬ 
ds  ies  of  Pol.  Econ.,  translated  by  George  Walker;  Blanqui’s  History  of  Pol. 
Ecv  J.,  chaps,  xxxii.  and  xxxiii.;  Say’s  Treatise  of  Pol.  Econ.,  I.  xv.;  Bastiat’s  Har 


HISTORY  OF  THE  SCIENCE. 


57 


6.  Next  after  France  comes  England  in  any  true  sketch  of 
the  modern  growth  of  our  science.  Indeed,  as  a  rule,  Eng¬ 
land  has  always  managed  her  matters  of  trade  better  than 
France;  but  her  thinkers  on  this  theme,  even  if  they  have 
been  more  numerous  and  copious,  came  later  upon  the  field, 
and  have  been  less  original.  Historically  considered.  Eng¬ 
land  has  been  rather  an  agricultural  than  a  commercial  or 
manufacturing  country.  We  have  the  statement  of  the 
Emperor  Julian  that,  in  the  middle  of  the  4th  century,  a 
famine  on  the  banks  of  the  Rhine  was  averted  by  the  impor¬ 
tation  of  com  from  Britain.  Sheep  culture  on  a  large  scale 
began  early,  as  we  have  seen  already ;  and  the  export  of 
wool  even  in  1354  was  35,500  sacks,  valued  at  £6  a  sack, 
aud  taxed  rather  more  than  40%  for  export.  Not  many 
years  after  that,  the  exportation  rose  to  100,000  sacks  a 
3*ear.  In  1600  the  export  of  wool  was  strictly  forbidden, 
under  the  notion  which  Colbert  was  fostering  at  the  same 
time  across  the  channel,  that  raw  materials  kept  at  home 
would  enable  a  country  to  sell  more  of  its  finished  products. 
This  prohibition  was  not  repealed  till  1825  ;  the  import  of 
foreign  wool  into  England  had  always  been  entirely  free  till 
1802,  between  which  time  and  1828  it  was  burdened  with 
heavy  duties ;  but  the  repeal  of  all  these  restrictions  was 
followed  by  a  large  increase  in  the  number  and  great  im¬ 
provement  in  the  quality  of  the  sheep  in  the  United  King¬ 
dom,  which  amounted  in  18G8  to  35,607,812.  Neither 
carrots  nor  turnips  nor  other  edible  roots  were  cultivated 
in  England  before  the  16th  century,  when  these  and  most 
of  the  garden  vegetables  were  introduced  from  Holland,  and 
the  potato  at  the  same  time  from  America ;  l  .it  onions  and 
pease  and  cabbage,  apples  and  other  fruits,  and  grapes  also 
perhaps  planted  b}^  the  Romans,  were  grown  with  success 
before  the  fall  of  Constantinople.  The  cereals,  and  espe- 


monie8  of  Pol.  Econ.,  in  the  Introduction;  Appletons’  and  Chambers’  Cyclopaedias, 
under  tit.es  Pol  Heal  Economy,  Bastiat,  Boisguillet>ert ,  Condilla r,  Turgot,  and 

others 


53 


i 


POLITICAL  ECONOMY. 


cially  wheat,  always  have  been  and  are  still  the  chief  crop* 
of  Britain.  The  old  “  three-field  husbandry  ”  of  the  Anglo- 
Saxons,  by  which  a  crop  of  wheat  was  followed  regularly  by 
a  crop  of  barley,  oats,  or  beans,  and  then  the  field  left  fal¬ 
low  every  third  3Tear,  has  been  kept  up  in  some  of  the  mid¬ 
land  counties  till  our  own  day.  Beans  have  gone  far  to 
supersede  fallows  on  strong  loams  and  clays.  The  “  four- 
course  husbandry  ”  of  modern  times,  namely,  wheat,  turnips, 
barley,  clover,  still  makes  wheat  the  main  thing ;  and  it  is 
claimed  that  the  average  yield  per  acre,  28  bushels,  is  the 
largest  in  the  world,  and  more  than  double  the  average  yield 
in  the  United  States.  The  total  extent  of  the  United  King¬ 
dom  is  70,300,000  acres,  of  which  26,300,000  acres  are  in 
mountain  pasture  and  waste,  and  50,000,000  acres  in  crops, 
meadows,  permanent  pasture,  and  woods.  There  were  in 
1877  in  wheat,  3,321,000  acres;  barley,  2,652,000;  oats, 
4,239,000;  potatoes,  1,393,000;  other  green  crops,  3,566,- 
000;  grass  under  rotation,  6,441,000;  permanent  pasture, 
24,000,000;  forest  and  plantations,  2,511,000;  and  in  flax, 
hops,  fallows,  and  so  on,  1,877,000  acres.  Notwithstand¬ 
ing  a  fertile  soil  and  a  skilful  culture  of  it,  and  notwith¬ 
standing  a  cost  of  importation  equal  on  the  average  to  the 
rent  of  the  land  for  a  corresponding  home  production,  in 
1880  that  part  of  British  bread  made  out  of  foreign  wheat 
was  larger  than  the  other  part,  and  one-fourth  of  the  meat 
and  dairy  products  eaten  by  the  British  people  were  im¬ 
ported  from  abroad.  The  entire  value  of  the  lands  of  the 
United  Kingdom  (including  the  mineral  lands)  has  been  put 
at  no  less  a  sum  than  £3,000,000,000  sterling. 

It  was  only  in  Queen  Elizabeth’s  time  that  England  began 
to  be  strictly  a  manufacturing  and  commercial  country. 
The  fall  of  Antwerp  in  1585  transferred  one-third  of  the 
merchants  and  manufacturers  of  the  ruined  city  to  the  banks 
of  the  Thames,  and  from  that  day  to  this  London  has  been 
the  commercial  mart  of  the  world.  The  export  of  wool 
declined  when  the  farmers’  wives  began  everywhere  to  spin 


11  IS  TOUT  OF  THE  SCIENCE. 


59 


their  own  wool  into  a  coarse  u  homespun,”  and  the  weaving 
and  fulling  and  dyeing  of  cloth  spread  out  from  the  towns 
to  the  hamlets.  Before  Elizabeth  died  in  1G03,  we  read 
of  the  worsted  trade  passing  from  Worsted  (a  now  almost 
forgotten  hamlet  of  Norfolk)  over  the  eastern  counties,  of 
the  broadcloths  of  the  “west  of  England”  that  then 
claimed  and  still  claim  the  palm  among  woollen  stuffs  of 
that  kind,  of  the  coverlets  of  York,  of  the  cloth  trade 
of  Halifax,  and  of  the  cutlery  of  Sheffield.  The  linens 
of  Ireland  and  Scotland  came  in  later,  and  the  weaving  of 
silk  was  then  just  beginning,  while  Cornwall  was  still  ex¬ 
porting  its  tin  as  of  old,  and  the  iron  furnaces  were  blazing 
in  Sussex  and  Kent.  Commerce  had  just  found  a  new  path 
to  Russia ;  ocean  ships  were  soon  built  bigger ;  the  old  time 
fisheries  of  the  Channel  and  of  Ulster  were  extending  to 
the  banks  of  Newfoundland  for  cod  and  to  the  Polar  seas 
for  whales  ;  John  Hawkins  began  in  15G2  the  slave-trade 
from  Africa,  which,  being  immoral,  proved  a  curse  for  more 
than  two  hundred  years  to  all  concerned  in  it ;  customers 
from  all  sides  dropped  in  on  the  British  markets,  for  Sir 
Thomas  Gresham,  of  whom  we  shall  hear  more  by  and  by, 
laid  the  foundation  at  London  of  the  Royal  Exchange  in 
15G6  ;  coal  came  gradually  into  sale  for  use  in  the  arts  and 
manufactures  and  for  domestic  purposes  also,  until,  in  1880, 
of  the  world’s  annual  output  of  300,000,000  tons,  Britain 
furnished  about  one-half,  and  the  United  States  only  one- 
sixth  ;  the  year  1770  is  the  great  year  in  the  history  of  the 
cotton  industry  on  both  sides  the  Atlantic,  for  it  was  in 
that  year  that  Hargreaves  patented  the  spinning -j enny ,  and 
fabrics  of  pure  cotton  were  first  woven  in  England,  and 
that  the  first  shipment  of  any  importance  of  raw  cotton 
(2,000  lbs.)  was  made  from  the  United  States;  in  1871, 
just  one  hundred  years  afterwards,  Britain  imported  1,778,- 
139,776  lbs.  of  raw  cotton,  of  which  1,038,G77,920  lbs. 
came  from  the  United  States,  and  the  latter  exported  in  all 
$218,327,109  worth  of  raw  cotton  that  year;  the  processes 


60 


POLITICAL  ECONOMY. 


of  spinning  have  been  so  improved  that  a  single  thread 
more  than  1,000  miles  long  has  been  spun  out  of  one 
pound  of  cotton,  and  the  arts  of  weaving  and  printing  the 
cloth  so  perfected  that  4,500,000  of  the  people  of  Britain 
are  said  to  be  engaged  in  the  industry  as  a  whole,  and  Brit¬ 
ish  export  of  cotton  goods  in  1875  was  £70,000,000  ;  colo¬ 
nies  laid  all  over  the  world  with  a  view  to  buy  and  sell  goods 
with  them  have  long  been  a  point  of  English  policy ;  and, 
as  a  consequence  of  all  this,  in  the  amount  and  variety  of 
her  home  and  foreign  commerce,  in  all  the  arts  and  modes 
of  buying  and  selling,  in  the  steadiness  of  coins  and  extent 
and  solvency  of  credits,  the  United  Kingdom  has  immensely 
surpassed  every  other  nation  in  the  world. 

Now,  it  could  not  be  that  these  things  should  go  on  as 
they  did  on  ship  and  shore,  and  no  one  give  his  thoughts  to 
the  core  of  these  things  and  to  the  source  of  these  gains. 
In  fact,  men  thought  a  great  deal  about  these  things,  and 
took  sharp  sides  in  relation  to  them  on  questions  of  taxa¬ 
tion,  poor-laws,  or  other  points  of  public  policy.  Some  were 
for  a  broad  trade,  and  some  were  not.  Under  the  spur  of 
difference  and  debate,  tract  after  tract  came  forth  in  Eng¬ 
land,  in  some  of  which  were  reached  bright  glimpses  of  some 
of  the  great  truths  that  make  up  our  science.  More  or 
less  the  fetters  of  the  mercantile  system  bound  men’s  minds, 
but  here  and  there  and  now  and  then  the  chain  was 
snapped  by  a  struggling  thought  that  looked  out  into  the 
realm  of  a  free  action.  The  best  thing  from  an  English 
source  in  the  16th  century  was  the  letter  of  instructions 
issued  to  Sir  Hugh  AYilloughby  when  he  started  out  in  1553 
for  the  exploration  of  the  seas  north  of  Europe,  in  the 
course  of  which  one  of  his  ships  discovered  Archangel. 
'■‘And  if  it  be  right  and  equity  to  shewe  such  liumanitie  to 
all  men ,  doubtlesse  the  same  ought  chiefly  to  be  shewed  to 
merchants ,  who ,  wandering  about  the  world ,  search  both  the 
land  and  the  sea,  to  carry  such  good  and  profitable  things  as 
are  found  in  their  countries  to  remote  regions  and  hingdomes , 


HIS  TORT  OF  THE  SCIENCE. 


61 


and  again  to  bring  from  the  same  such  things  as  they  find 
there  commodious  for  their  own  countries :  both  as  well  that 
the  people  to  whom  they  goe  may  7iot  be  destitute  of  such  com¬ 
modities  as  their  countries  bring  not  forth  to  them ,  as  that 
also  they  may  be  partakers  of  such  things  whereof  they  abound . 
For  the  God  of  heaven  and  earth ,  greatly  providing  for  man - 
kinde ,  would  not  that  all  things  should  be  found  in  one  region , 
to  the  ende  that  one  should  have  need  of  another ;  that ,  by  this 
means ,  friendship  might  be  established  among  all  men ,  and 
every  one  seek  to  gratifie  all.” 

Omitting  the  pamphleteers,  who  yet  did  good  work  in 
pushing  their  way  into  the  wilderness  to  right  or  left,  and 
thus  pioneered  the  great  writers  who  came  after,  —  the  phi¬ 
losopher  John  Locke  must  first  be  mentioned,  whose  treatise 
on  Civil  Government,  written  to  justify  the  English  Revolu¬ 
tion  of  1688,  incidentally  illustrates  the  vital  distinction  be¬ 
tween  Utility  and  Value,  and  all  but  establishes  this  one  of 
the  fundamental  truths  of  our  science,  namely,  that  Value  is 
the  birth  of  human  effort,  and  not  the  gift  of  Providence. 
“  For  it  is  labor  indeed  that  puts  the  difference  of  value  on 
every  thing.  Whatever  bread  is  ivorth  more  than  acorns , 
wine  than  water ,  or  cloth  or  silk  than  leaves ,  skins ,  or  moss , 
that  is  wholly  owing  to  labor  and  industry.  It  is  labor  that 
puts  the  greatest  part  of  value  upon  Land,  without  which  it 
would  scarcely  be  worth  any  thing.  Supposing  the  world 
given ,  as  it  teas,  to  the  children  of  men  in  common ,  we  ?ee 
how  labor  could  make  men  distinct  titles  to  the  several  parcels 
of  it  for  their  private  uses.  For  it  is  not  merely  the  plough¬ 
man’s  pains ,  the  reaper’s  and  thrasher’s  toil ,  and  the  baker’s 
sweat ,  that  is  to  be  counted  into  the  bread  we  eat;  the  labor 
of  those  who  broke  the  oxen ,  who  digged  and  wrought  the  iron 
and  stones ,  who  felled  and  f  ramed  the  timber  employed  about 
the  plough,  mill ,  oven ,  or  any  other  utensils ,  which  are  a  vast 
number ,  requisite  to  this  corn ,  from  its  being  seed  to  be  soivn 
to  its  being  made  bread ,  that  must  all  be  charged  to  the  ac¬ 
count  o/Labour,  and  received  as  an  effect  of  that;  nature  and 


62 


POLITICAL  ECONOMY. 


the  earth  furnishing  the  almost  worthless  materials  as  in  them¬ 
selves.’  ’  These  detached  passages  are  an  early,  if  not  the 
very  earliest,  statement  of  a  truth  destined  in  our  own  day 
to  transform  the  face  of  Political  Economy ;  but  Locke  him¬ 
self  was  hardly  aware  of  its  pregnant  nature,  and  did  not 
deduce  from  it  the  conclusions  which  it  is  well  able  to  bear. 
Locke  also  did  good  service  in  the  same  reign  by  his  tracts 
on  Money,  in  helping  to  prevent  the  lowering  of  the  silver 
standard,  and  in  diffusing  sound  principles  (not  unmixed 
with  several  errors)  on  the  nature  of  money.  He  justly 
taught  that  it  was  as  wrong  for  the  State  to  try  to  fix  the 
price  for  the  use  of  money  (usury-laws)  as  to  fix  the  price 
of  cutlery  or  broadcloth. 

The  historian  Hume  issued  his  Political  Essays  in  1752. 
The  titles  of  some  of  these  are,  —  “Of  Commerce,”  “Of 
Money,”  “Of  Interest,”  “  Of  the  Balance  of  Trade,”  “Of 
the  Jealousy  of  Trade,”  “  Of  Taxes,”  “  Of  Public  Credit.” 
In  these  essays  are  at  once  to  be  recognized  not  only  the 
clear-flowing  st}rle  that  makes  it  always  a  pleasure  to  read 
his  History  of  England,  but  also  some  strangely  liberal  senti¬ 
ments  on  trade  almost  wholly  emancipated  from  the  mer¬ 
cantile  s}7stem.  But  this  must  be  remembered  :  the  doctrines 
of  Boisguillebert  on  free  international  exchange  and  the 
vanity  of  the  so-called  balance  of  trade  and  the  impossi¬ 
bility  of  one  nation’s  monopolizing  the  coin  of  the  world 
had  by  this  time  become  known  in  England,  and  Henri  Mar¬ 
tin  says  that  Hume  was  familiar  with  these  doctrines,  which 
takes  off  the  edge  of  our  surprise  that  the  latter  seems  so 
far  in  advance  of  his  times.  But  his  merit  is  great  notwith¬ 
standing.  He  ran  into  the  very  teeth  of  the  opinion  of  his 
day ;  and  whereas  Boisguillebert  was  prolix  and  confused, 
Hume  was  terse  and  clear.  For  example  ;  —  “  Foreign  trade , 
by  its  imports ,  furnishes  materials  for  new  manufactures; 
and ,  by  its  exports ,  it  produces  labor  in  particular  commodi¬ 
ties,  which  could  not  be  consumed  at  home.  In  short ,  a  king¬ 
dom  that  has  a  large  import  and  export ,  must  abound  more 


HISTORY  OF  THE  SCIENCE. 


63 


with  industry  than  a  kingdom  that  rests  contented  with  its 
own  commodities .”  In  the  conclusion  of  the  essay  on  the 
Jealousy  of  Trade  occur  these  noble  words  :  —  u  I  shall  there¬ 
fore  venture  to  acknoidedge ,  that ,  not  only  as  a  man ,  but  as 
a  British  subject .,  I  pray  for  the  flourishing  commerce  of  Ger¬ 
many,  Spain ,  Italy ,  and  even  France  itself.”  Perhaps  there 
was  no  earlier  hint  of  the  great  truth  afterwards  fully  de¬ 
veloped  by  Say,  that  there  can  never  be  a  general  over¬ 
production,  than  these  words  from  the  essay  on  Commerce  :  — 
“  If  strangers  will  not  take  any  particular  commodity  of  ours, 
we  must  cease  to  labor  in  it.  The  same  hands  will  turn  them¬ 
selves  to  some  refinement  in  other  commodities  which  may  be 
wanted  at  home;  and  there  must  always  be  materials  for  them 
to  work  upon ,  till  every  person  in  the  State  who  possesses 
riches,  enjoys  as  great  plenty  of  home  commodities,  and  those 
in  as  great  perfection,  as  he  desires ;  which  can  never  pos¬ 
sibly  happen.”  On  the  subject  of  Mone}r,  Hume  is  less 
happy,  although  he  casts  some  new  light  on  it.  He  mars 
his  discussion  by  assuming  that  a  less  quantity  of  the  metals 
would  answer  every  purpose  of  commerce  as  well  as  a 
greater,  and  have  as  much  value ;  which  would  only  be 
true  on  the  supposition  that  the  less  quantity  cost  as  much 
effort  to  produce  it,  and  its  smaller  subdivisions  were  as 
convenient  in  exchange ;  and  from  this  false  assumption  he 
deduces  this  very  false  inference  :  —  ‘  ‘  Were  all  our  money, 
for  instance,  recoined,  and  a  penny’s  worth  of  silver  taken 
from  every  shilling,  the  new  shilling  would  probably  purchase 
every  thing  that  could  have  been  bought  by  the  old;  and  do¬ 
mestic  industry,  by  the  circulation  of  a  great  number  of  pounds 
and  shillings,  would  receive  some  increase  and  encourage¬ 
ment.”  Are  men,  then,  usually  willing  to  receive  as 
equal  to  \\  ? 

In  1776,  the  same  year  in  which  Condillac  put  out  his 
book  already  referred  to,  Adam  Smith,  who  was  the  inti¬ 
mate  friend  of  Hume,  published  “  An  Inquiry  into  the 
Nature  and  Causes  of  the  Wealth  of  Nations.”  He  was 


64 


POLITICAL  ECONOMY. 


then  fifty-three  years  old.  Scotch  born  and  trained,  though 
he  passed  seven  years  at  the  University  of  Oxford,  he  be¬ 
came  in  1752  Professor  of  Moral  Philosophy  at  Glasgow, 
and  issued  in  1759  his  “Theory  of  the  Moral  Sentiments, ” 
a  book  on  which  lie  supposed  his  lasting  fame  wTould  rest, 
but  which  is  now  very  nearly  forgotten.  His  University 
lectures  on  natural  theology  and  ethics  were  thus  put  in  sub¬ 
stance  into  permanent  form;  while  his  lectures  given  the 
same  time  on  jurisprudence  and  public  economy,  which  have 
not  been  preserved,  are  thought  to  have  been  the  nucleus  of 
his  later  and  far  more  famous  book,  since  he  is  known  to 
have  advocated  in  them  the  doctrine  of  Free  Trade,  which 
was  at  that  time  held  also  by  the  most  enlightened  men  in 
France,  Italy,  and  Spain.  Resigning  his  professorship  in 
1763,  he  went  the  next  year  to  France,  where  he  resided 
nearly  three  years,  and  where  he  became  intimate  with 
Quesnay  and  other  prominent  pl^siocrats  of  the  first  school 
already  characterized,  whose  doctrines  are  clearly  seen  to 
color  many  parts  of  his  own  book.  Indeed,  had  not  Ques- 
nay’s  death  prevented  it,  the  book  would  have  been  dedi¬ 
cated  to  him.  So  continuous  is  the  growth  of  a  science 
when  once  it  begins,  and  so  closely  connected  in  its  origin 
was  the  second  school  with  the  first.  Returning  to  his 
native  Kirkcaldy,  where  there  is  still  a  paved  walk  to  the 
seashore  called  “Adam  Smith’s  Close,”  and  where  the  tra¬ 
dition  is  still  alive,  that  he  used  to  pace  back  and  forth  along 
the  shore  muttering  and  gesticulating,  he  passed  there  in 
retirement  the  ten  years  previous  to  its  publication  in  the 
preparation  of  his  famous  book.  It  will  be  noticed  that  the 
publication  took  place  in  the  very  year  in  which  the  Inde¬ 
pendence  of  the  United  States  was  declared  ;  and  this  book 
itself  was  a  sort  of  declaration  of  independence  of  the  false 
principles  and  foolish  policy  of  the  mercantile  system.  Like 
the  document  of  Jefferson,  this  also  excited  universal  atten¬ 
tion  :  both  alike  mark  an  era ;  and  the  results  in  the  eco¬ 
nomical  world  of  the  treatise  of  Smith  have  been  scarcely 


m STORY  OF  TIIE  SCIENCE. 


65 


less  striking  and  beneficent  than  the  results  in  the  political 
world  of  Jefferson’s  Declaration.  Mr.  Buckle  goes  so  far 
as  to  say,  that  “ Adam  Smith  contributed  more ,  by  the  jmbli- 
cation  of  this  single  work,  toward  the  happiness  of  man,  than 
has  been  effected  by  the  united  abilities  of  all  the  statesmen 
and  legislators  of  whom  history  has  preserved  an  authentic 
account .”  This  is  extravagant.  So  also  is  the  general  esti¬ 
mate  put  upon  the  book  in  Great  Britain,  as  if  it  were  wholly 
original,  as  if  it  had  created  our  science,  and  as  if  its  author 
deserved  the  title  of  “father”  of  the  science.  Political 
Economy  has  no  father.  There  are  elder  brothers  in  that 
family,  of  whom  the  eldest  is  Aristotle,  and  prominent 
among  the  others  will  always  be  Adam  Smith.  Nulla  est 
ars  quce  singulari  consummata  sit  ingenio.  No  branch  of 
knowledge  is  achieved  by  the  genius  of  one  man. 

Adam  Smith,  though  not  the  founder  of  our  science,  is 
the  true  founder  of  the  second  school  of  it,  which  we  have 
already  called  the  Commodities  School ;  and  to  him  more 
than  to  any  other  one  man  must  be  referred  the  fourth  and 
final  theory  of  sales,  namely,  the  theory  of  freedom  of  sales. 
He  founded  the  second  school,  because  he  gave  a  strong 
preference  to  material  commodities  over  other  forms  of 
value,  and  even  to  agriculture  over  other  forms  of  produc¬ 
tion,  while  he  well  refuted  the  point  of  Quesnay,  that  the 
physical  earth  is  the  only  source  of  values.  He  also  gave 
a  false  preference  to  the  home  trade  over  the  foreign  trade, 
to  labor  as  a  cause  of  value  over  desire  as  the  other  cause, 
and  even  to  certain  forms  of  salable  effort  over  other  forms 
equally  salable.  Still,  several  of  the  more  important  propo¬ 
sitions  of  our  science  are  established  in  this  book  beyond  the 
reach  of  controversy,  and  they  have  exerted  a  prodigious 
influence  over  the  legislation  of  Great  Britain  and  of  many 
other  countries  also.  He  demonstrated  that  both  the  parties 
are  gainers  in  commerce.  He  exalted  labor,  and  showed 
the  immense  advantages  of  its  division.  lie  advocated  with 
all  his  might  the  unshackled  freedom  of  labor  and  trade, 


66 


POLITICAL  ECONOMY. 


and  mercilessly  exposed  the  weak  points  of  the  devices  of 
the  mercantile  system. 

On  the  other  hand,  a  strange  lack  of  precise  definitions, 
a  want  of  consistency  in  the  use  of  terms,  and  consequently 
an  absence  of  scientific  generalizations,  mar  the  “Wealth 
of  Nations,”  and  have  given  rise  to  endless  controversies. 
For  example,  Ur.  Smith  does  not  anywhere  tell  us  in  what 
“wealth”  consists.  He  does  not  attempt  to  give  a  defini¬ 
tion  of  that  word,  which  is  with  him  the  bottom  word.  From 
the  frequency,  however,  with  which  he  uses  the  phrase,  “  the 
annual  produce  of  land  and  labor,”  we  may  infer  that  that 
was  in  general  his  idea  of  “wealth.”  If  so,  his  idea  was 
very  faulty;  for  he  himself  classes  “labor”  among  the 
valuable  things  ;  but  labor  is  no  part  of  “  the  annual  prod¬ 
uce  of  land  and  labor.”  He  counts  as  a  part  of  fixed  capital 
“  the  acquired  and  useful  abilities  of  all  the  inhabitants  or 
members  of  the  societ}^ ;  ”  but  “abilities,”  certainly  so  far 
as  they  are  natural,  are  no  part  of  “  the  annual  produce  of 
land  and  labor.”  He  rightly  reckons  as  a  part  of  circulat¬ 
ing  capital  4  4  bank-notes  and  bills  of  exchange  ;  *  ’  but  clearly 
enough,  these  are  not  44  the  produce  of  land  and  labor.” 
Many  things  are  bought  and  sold  every  day  which  are  not 
“  the  produce  of  land  and  labor,”  either  as  separate  or  com¬ 
bined  ;  and  many  things  which  are  44  the  produce  of  land  and 
labor,”  whether  separate  or  combined,  cannot  be  sold  at  all 
at  certain  times  and  places.  Therefore,  Dr.  Smith’s  idea 
of  “wealth”  was  at  once  quite  too  narrow  and  quite  too 
wide.  But  it  is  well  to  note  that  he  too  held  with  those  of 
old  that  there  are  at  least  three  kinds  of  valuable  things. 
At  last  he  comes  in  a  remarkable  passage  to  the  root  of  the 
whole  matter.  He  says:  44  A  guinea  (which  may  be  called 
the  produce  of  land  and  labor)  may  be  considered  as  a  bill 
for  a  certain  quantity  of  necessaries  and  conveniences  upon 
all  the  tradesmen  in  the  neighborhood.  The  revenue  of  the 
person  to  whom  it  is  paid  does  not  so  properly  consist  in  the 
piece  of  gold,  as  in  what  he  can  get  for  it ,  or  in  what  he  can 


HISTORY  OF  THE  SCIENCE. 


67 


exchange  for  it.  If  it  could  be  exchanged  for  nothing ,  it  would , 
like  a  bill  upon  a  bankrupt ,  be  of  no  more  value  than  the 
most  useless  piece  of  paper.”  This  is  just  the  truth.  Here 
Dr.  Smith  admits  in  ample  terms  that  even  a  gold  guinea, 
and  hence  all  kinds  of  valuable  things,  depends  for  its  value 
on  its  exchangeability .  If  he  had  organized  his  matter  around 
this  point  as  a  centre,  instead  of  around  “  the  annual  prod¬ 
uce  of  land  and  labor;  ”  if  he  had  widened  his  discussions 
so  as  to  include  all  exchangeable  things  as  such,  instead  of 
narrowing  them  to  what  is  “  fixed  and  realized  in  some  ven¬ 
dible  commodity ;  ”  and  if  he  had  given  his  mind  more  to 
definitions  and  thus  to  generalizations  ;  his  book  would  never 
have  become,  as  it  has  already  become,  antiquated ;  for  he 
had  the  art  of  making  his  discussions  interesting,  even  when 
his  conclusions  were  clearly  wrong ;  of  bringing  the  truths 
discovered  by  others  and  those  first  demonstrated  by  himself 
into  a  sort  of  system,  some  parts  of  which  indeed  are  not 
consistent  with  other  parts,  —  as  when,  for  example,  he 
allows  that  a  state  may  regulate  the  rate  of  interest,  and 
that  some  wines  bear  a  high  price  because  they  are  scarce 
and  fashionable ;  and  of  making  the  facts  of  history  throw 
a  blaze  of  light  upon  the  points  he  had  in  hand. 

Dr.  Smith’s  book  was  translated  into  French  in  1781,  and 
soon  threw  into  the  shade  not  only  Condillac’s  book  on 
“Commerce”  but  also  more  or  less  the  writings  of  the 
physiocrats  and  of  the  earlier  French  economists.  It  made 
such  an  impression  in  France  in  connection  with  the  impres¬ 
sion  already  produced  by  Boisguillebert  and  the  rest,  that 
William  Pitt,  who,  as  an  undergraduate  at  Oxford,  had  just 
before  studied  the  treatise  of  Smith,  had  little  difficulty  in 
1786  in  concluding  with  the  French  Government  a  treaty  of 
commerce  and  navigation,  by  which  was  established  on  the 
payment  of  moderate  duties  “  reciprocal  and  entirely  perfect 
liberty  of  navigation  and  commerce  between  the  subjects  of 
each  party  in  all  and  every  the  kingdoms,  states,  provinces 
and  territories,  subject  to  their  majesties  in  Europe  for  all 


68 


POLITICAL  ECONOMY. 


and  singular  kind  of  goods  in  these  places.”  This  excellent 
treaty  was  shortly  after  swept  away  by  the  oncoming  of  the 
French  Revolution.  If  books  are  to  be  measured  by  the 
effect  that  follows  them  on  the  fortunes  of  mankind,  then 
Dr.  Smith’s  must  be  reckoned  among  the  greatest  of  books. 
It  was  translated  into  several  of  the  languages  of  the  Conti¬ 
nent,  and  came  to  have  a  crowd  of  followers  in  all  the  coun¬ 
tries  of  the  west  of  Europe.  Of  course  that  crowd  has  been 
the  greatest  in  Great  Britain.  For  a  century  there  has  been 
no  end  of  the  flow  of  writings  that  may  fairly  be  said  to  be¬ 
long  to  his  school.  These  writers  in  long  succession,  many 
of  them  of  great  reputation,  whose  special  points  will  be 
named  and  discussed  in  the  sequel,  have  for  the  most  part 
followed  out  his  principles  and  accepted  his  limitations,  — 
like  him,  confining  their  discussions  of  value  mainly  to  ma¬ 
terial  commodities,  regarding  labor  rather  than  desire  as  the 
cause  of  value,  ignoring  personal  services  as  such,  and  giv¬ 
ing  with  some  exceptions  but  little  attention  to  the  subject 
of  credit.  Of  course  in  such  thorough  and  continued  discus¬ 
sions  they  have  corrected  many  of  Adam  Smith’s  minor  mis¬ 
takes,  and  have  made  important  additional  contributions  to 

the  science  at  many  points.  They  have  also  the  great  repu- 

* 

tation  that  attends  undoubted  success :  they  have  put  the 
doctrines  of  Free  Trade  and  Sound  Money  upon  an  im¬ 
movable  basis  in  Great  Britain,  and  thus  exerted  a  powerful 
influence  towards  their  establishment  throughout  the  world. 

Nevertheless  the  signs  are  now  seen  on  every  hand  that 
the  second  school  of  Political  Economy,  as  a  scientific  sys¬ 
tem,  is  nearing  its  end.  It  is  already  passing  to  join  the 
first  school,  its  worthy  predecessor,  in  the  land  of  Silence ; 
and  the  third  school,  which  started  the  same  year,  may  per¬ 
haps  already  be  said  to  be  the  system  of  the  Present,  and  at 
any  rate  is  certain  to  become  the  system  of  the  Future. 
Three  indications  of  the  decay  of  the  second  school  may 
suffice  the  present  purpose.  (1).  Bonamy  Price,  long  distin¬ 
guished  both  in  other  ways  and  as  the  Professor  of  Political 


HISTORY  OF  THE  SCIENCE. 


69 


Economy  in  the  University  of  Oxford,  a  disciple  of  Adam 
Smith,  and  as  much  entitled  perhaps  as  any  man  in  the 
world  to  speak  for  the  school,  published  a  book  in  1878, 
dedicated  by  permission  to  His  Ro}Tal  Highness,  Prince  Leo¬ 
pold,  with  the  title  “ Practical  Political  Economy.”  The 
subject  of  the  first  chapter  of  this  book  is,  “Is  Political 
Economy  a  science?  ”  and  the  answer  extended  through 
thirty  pages  is  an  emphatic  No.  The  title  is  in  itself  a 
confession,  and  the  reason  given  for  the  title  is  an  express 
confession.  “  The  vjord  Practical  is  added  solely  in  contra¬ 
distinction  to  what  may  be  called  Scientific  Political  Economy. 
It  is  intended  to  indicate  a  mode  of  treatment  which  not  only 
does  not  claim  to  be  scientific ,  but  which  supposes  the  scientific 
method  to  be  a  mistake.”  Moreover,  Prof.  Price  does  not 
indicate  his  own  feeling  alone  in  this  remarkable  chapter, 
but  goes  on  to  say  of  the  meeting  of  the  Political  Economy 
Club  of  London  in  187G  to  celebrate  the  centenary  of  Adam 
Smith’s  book,  —  “  It  is  unhappily  but  too  clear  that  a  marked 
feeling  of  dissatisfaction  with  the  actual  position  of  Political 
Economy  pervaded  the  whole  gathering.”  The  chief  ground 
of  this  scientific  despair  of  the  second  school,  as  the  present 
writer  pointed  out  many  years  ago,  is  their  vain  attempt  to 
use  the  word  “  wealth  ”  in  a  technical  sense.  That  is  a  word 
impossible  to  be  defined  with  precision.  From  its  indefinite¬ 
ness  and  the  variety  of  associations  it  carries  along  with  it 
in  different  minds,  it  is  totally  unfit  for  any  scientific  pur¬ 
pose  whatever.  No  two  writers  conceive  of  it  alike.  In  his 
first  sentence  Adam  Smith  seems  to  explain  it  as  “  tlce  neces¬ 
saries  and  conveniences  of  life  which  a  nation  annually  con¬ 
sumes.”  That  is  pretty  vague,  to  say  the  least  of  it. 
“What  is  wealth?”  asks  Bonarny  Price,  and  he  answers 
cautiously,  —  “  Here  again  we  have  a  question  as  hard  and 
as  puzzling  as  ever.”  But  while  the  school  as  a  whole  has 
tended  towards  a  concrete  meaning  of  the  word,  as  denoting 
something  fixed  and  realized  in  a  vendible  commodity,  Price 
goes  on  to  say,  —  “  I  hold  that  the  qualities  of  a  people,  their 


70 


POLITICAL  ECONOMY . 


moral ,  intellectual  and  physical  natures,  are  parts  of  their 
icealth.”  The  troth  is,  each  disciple  of  the  second  school 
has  had  his  full  say  about  the  word  :  no  two  of  them  have 
agreed  about  its  meaning :  if  possible,  each  has  been  more 
befogged  by  it  than  his  predecessor :  it  has  been  demon¬ 
strated  that  there  is  no  need  of  the  word  at  all  in  the 
science  ;  but  the  school  will  not  give  it  up  ;  and,  therefore, 
they  are  dying  of  a  pet  but  inadequate  word,  which  they 
insist  on  putting  in  at  the  foundation  of  their  work.  Prof. 
Price  admits  in  so  many  words,  — u  ice  must  give  up  all 
hope  of  a  scientific  definition  of  wealth Yes,  indeed;  and 
they  must  therefore  ‘  ‘  give  up  all  hope  ’  ’  of  holding  the 
ground  of  Political  Economy  against  those  who  know  how 
to  use  words  with  precision. 

(2) .  Mr.  Cliffe  Leslie,  a  very  intelligent  and  copious  and 
candid  economical  writer  of  the  Commodities  School,  in  an 
article  of  the  Fortnightly  Review  for  October,  1880,  betrayed 
his  infidelity  in  the  scientific  conclusions  of  Political  Economy 
both  in  other  ways  and  also  by  these  significant  questions  at 
the  end  :  —  “  How  much ,  beneath  what  can  claim  only  a  local 
or  a  temporary  importance,  possesses  universal  and  permanent 
value  ?  What  problems  have  been  solved  for  all  time  ?  What 
universal  truths  have  been  discovered ?  How  much  of  the 
work  of  Smith,  Malthus,  Mill,  Poscher,  Knies,  Bastiat, 
Chevalier,  Way  kind,  Walker,  Perry,  Carey,  will  remain 
standing  and  solid  a  hundred  years  hence?’*  The  same 
gentleman  more  recently  mildly  ridiculed  the  present  writer 
for  these  words  in  the  preface  of  his  smaller  book:  —  “I 
have  endeavored  in  this  book  so  to  lay  the  foundations  of 
Political  Economy  in  their  whole  circuit,  that  they  will  never 
need  to  be  disturbed  afterwards  by  persons  resorting  to  it 
for  their  early  instruction,  however  long  and  however  far 
these  persons  may  pursue  their  studies  in  this  science  :  ”  — 
as  if  such  foundations  could  not  be  laid,  or  at  least  had  not 
yet  been  laid,  for  the  science.  Mr.  Leslie’s  words  in  this 
connection  are  of  importance  only  as  indicating  clearly  the 


HISTORY  OF  THE  SCIENCE. 


71 


dissatisfaction,  or  rather  despair,  of  the  second  school  as 
such. 

(3) .  The  same  thing  is  indicated  by  the  shock  produced 
in  England  by  the  books  of  Henry  Dunning  Macleod.  Mr. 
Macleod  indeed  did  not  come  upon  the  British  public  un¬ 
heralded.  So  early  as  1831,  Archbishop  Whately,  then 
Professor  of  Political  Economy  at  Oxford,  criticised  the 
fundamental  views  of  the  second  school,  disliked  the  techni¬ 
cal  use  of  the  word  “  wealth,”  and  proposed  a  new  name 
for  the  science  —  Catallactics  —  in  exact  accordance  with  its 
true  nature.  “  For  the  things  themselves  of  which  the  science 
treats ,  are  immediately  removed  from  its  province,  if  ice 
remove  the  possibility  or  the  intention  of  making  them  the 
subject  of  exchange;  and  this ,  though  they  may  conduce  in 
the  highest  degree  to  happiness ,  which  is  the  ultimate  object 
for  which  wealth  is  sought .”  Thus  Whately  reached  one 
hand  back  to  Condillac,  and  the  other  (as  it  were)  forward 
to  Bastiat  and  Macleod.  The  second  school,  however,  Avas 
then  too  strong  in  England  through  the  labors  of  Smith  and 
Ricardo,  and  was  soon  to  be  too  much  restrengthened  by 
the  work  of  Stuart  Mill,  for  these  light  blows  of  the  polite 
churchman  to  have  much  effect.  But  Macleod  hewed  roughly, 
lie  was  bred  a  lawyer,  and  as  such  and  as  land-proprietor 
became  interested  in  economics  on  the  practical  side.  II is 
first  economical  discoveries  were  in  the  realm  of  Credit,  for 
the  understanding  of  which  he  had  the  great  advantage  of 
familiarity  with  the  Roman  Law,  and  also  with  the  practical 
routine  of  commercial  business.  lie  showed  that  the  buying 
and  selling  of  Credits  come  just  as  much  within  the  view  of 
the  science  as  the  buying  and  selling  of  Commodities  ;  and 
even  maintained  to  the  horror  of  the  concrete  school  that 
within  certain  limits  Credit  is  capital ;  and  also  Avas  the  first 
to  demonstrate  the  important  principle,  that  a  difference  in 
the  rate  of  discount  beticeen  any  two  places ,  more  than  suffi¬ 
cient  to  pay  the  cost  of  sending  bullion  from  one  to  the  other , 
naturally  causes  a  transmission  of  bullion  from  one  to  the 


72 


POLITICAL  ECONOMY. 


other ;  and ,  accordingly ,  a  sedulous  attention  to  the  rates  of 
discount  should  he  the  managing  principle  of  hanks  of  issue. 
Macleod,  accordingly,  appeared  as  a  strong  champion  of  the 
third  school.  He  held  that  all  three  kinds  of  sales  come 
equally  beneath  Political  Economy.  In  1872  he  wrote  to 
Chevalier,  the  personal  friend  of  Bastiat,  in  warm  allusion 
to  the  latter :  —  “  No  one  can  feel  more  sensibly  titan  I  do 
how  inferior  I  am  to  your  lamented  friend  in  literary  skill, 
hut  our  ideas  are  the  same;  and  I  venture  to  say  luith  confi¬ 
dence. ,  that  had  he  been  living  now ,  there  would  have  been  no 
material  difference  between  us  at  any  point.”  First  in  his 
“Theory  and  Practice  of  Banking,”  since  republished  in 
different  forms;  then  in  1858  in  his  “Elements  of  Political 
Economy,”  afterwards  expanded  into  his  “Principles  of 
Economical  Philosophy ;  ’  ’  and  lastly  in  his  exhaustive 
“Dictionary  of  Political  Economy,”  Macleod  showed  him¬ 
self  to  be  learned,  lawyer-like,  copious,  original,  over-confi¬ 
dent,  sometimes  careless,  controversial,  exasperating,  almost 
belligerent,  and  always  indefatigable.  Good  economists  of 
the  earlier  faith,  like  Cairns,  Price,  and  Leslie,  found  it 
hard  to  possess  their  souls  in  patience.  Half-conscious  that 
their  own  position  was  narrow  and  untenable,  half-persuaded 
against  their  will  that  the  science  was  moving  into  a  broader 
and  better  field,  and  thoroughly  disliking  the  sledge-hammer 
and  devil-may-care  manner  of  their  Scotch  compeer,  there 
was  something  ludicrous  to  bystanders  in  the  attitude  of  the 
older  brethren  towards  Macleod.  Still,  though  his  views 
found  a  readier  acceptance  in  France  and  in  the  United 
States  than  at  home,  his  books  have  already  changed,  and 
cannot  fail  in  the  end  greatly  to  change,  the  economic  opin¬ 
ions  of  his  countrvmen.  His  definition  of  the  science  is  the 

t j 

same  as  that  of  all  the  other  leaders  of  the  All  Sales  School, 
namely,  the  Science  of  Exchanges.1 

1  Broderick’s  English  Land  and  English  Landholders,  pp.  3, 11,  et  seq. ;  Green’s 
England,  I.  3G3,  410;  McCulloch’s  Com.  Diet.,  Arts.  Wool  and  Cotton;  Green’s  Short 
Hist.,  p.  380  et  seq.;  Locke  on  Civil  Gov.,  sects.  39-43;  Henri  Martin’s  Dec.  Mon., 
II.  147;  McCulloch’s  Discourse  in  his  ed.  Adam  Smith;  Columella,  De  Re  Rustica, 


HISTORY  OF  THE  SCIENCE. 


73 


7.  Italy  was  the  land  whence  the  light  of  the  new  learn¬ 
ing  of  the  lGth  century  spread  over  Europe.  Banks,  or 
public  loans,  on  which  interest  was  paid  and  whose  shares 
were  negotiable,  had  been  very  early  established  at  Venice, 
Milan,  and  Genoa ;  and  this  circumstance  with  others  natu¬ 
rally  directed  the  chief  attention  of  the  Italian  economists 
to  the  subject  of  Money.  In  1552,  Scaruffi  published  a  book 
On  Moneys  and  the  true  proportion  between  Gold  and  Silver. 
In  1613,  Serra  issued  his  Treatise  on  the  causes  which  make 
Gold  and  Silver  abound  in  Kingdoms.  Davanzati  wrote  :  — 
“  Gold  and  silver  are  instruments  tvhich  make  the  property 
of  mortals  circulate  over  the  whole  globe ,  and  which  may  be 
considered  as  secondary  causes  of  a  happy  life.”  Mengotti 
wrote  :  —  “ Money  is  essentially  rebellious  to  the  orders  of  law : 
it  comes  without  being  called ,  it  goes  without  being  arrested , 
deaf  to  advances ,  insensible  to  threats ,  attracted  solely  by  the 
allurements  of  profits.”  Numerous  writers  besides  these 
through  original  discussions  came  to  the  sound  conclusion 
that  governments  have  no  right  to  tamper  with  the  standard 
of  value  used  by  their  subjects  ;  and  some  of  them  expressed 
the  strong  reaction  against  the  Mercantile  System  felt  in 
Italy,  as  well  as  in  France  and  England,  during  the  second 
half  of  the  18th  century.  The  first  professorship  of  Politi¬ 
cal  Economy  was  established  in  the  university  of  Naples  in 
1754,  on  three  conditions,  namely,  that  the  lectures  should 
be  in  Italian,  that  Antonio  Genovesi  should  be  the  first  pro¬ 
fessor,  and  tnat  no  ecclesiastic  should  succeed  him.  Geno¬ 
vesi  was  a  mercantilist,  but  he  insisted  on  the  free  exportation 
of  corn.  A  second  professorship  was  instituted  in  Milan  in 
1768,  and  Beccaria,  who  already  felt  the  influence  of  Quesnay 
and  insisted  on  the  freedom  of  inland-industry,  was  appointed 
to  lecture  in  it.  He  was  the  first  to  call  iron  the  father-metal. 
Later  Italian  economists  belonged  in  general  to  the  second 
school.  The  two  most  remarkable  things  about  the  Italians 

lib.  i. ;  Cairns’s  Pol.  Econ.,  Appendix  A;  Macleod’s  Elements  of  Pol.Econ.,  Preface, 
and  Macleod’s  Prin.  Econom.  Phil.,  Dedicatory  letter  to  Chevalier. 


74 


POLITICAL  ECONOMY. 


in  this  connection  are  (1)  their  precedence  in  founding  chairs 
for  teaching  the  science,  and  (2)  their  zeal  in  collecting  and 
classifying  the  books  on  the  science.  A  collection  of  the 
best  Italian  writers  was  begun  under  the  patronage  of  Napo¬ 
leon  in  1803,  and  completed  in  fifty  octavo  volumes  in  18 1G. 
A  second  collection  in  twenty-six  octavo  volumes  was  made 
by  Professor  Ferrara  of  Turin  in  1850-70.  A  third  collec¬ 
tion,  to  consist  in  part  of  foreign  works  translated  into 
Italian,  was  commenced  in  Turin  by  Professor  Boccardo  in 
1875.  Professor  Cossa  of  the  university  of  Pavia  published 
in  English  in  1880,  as  previously  in  Italian,  a  Guide  to  the 
Study  of  Political  Economy.  He  issued  also  about  the 
same  time  in  Italian  other  treatises  of  merit  on  the  general 
subject.1 

8.  Perhaps  the  Germans  have  done  more  for  Political 
Economy  through  their  public  action  in  the  Zollverein,  and 
through  the  Society  of  German  Economists,  than  through 
the  individual  contributions  of  their  numerous  economical 
writers.  Prussia  founded  the  Zollverein  in  1818.  As  a 
separate  state  of  Germany,  Prussia  deserved  well  of  the 
world  for  successful  efforts  to  improve  and  diffuse  education, 
and  for  equally  successful  efforts  to  bring  into  Germany  as 
a  whole  a  free  commercial  system.  The  outline  of  the  Zoll¬ 
verein  was  uniform  customs  duties  on  the  frontier,  a  division 
of  this  revenue  among  the  states  on  the  basis  of  the  popula¬ 
tion  of  each,  and  a  perfect  internal  free  trade.  The  Ger¬ 
man  States  came  into  the  plan  one  after  another,  suppressed 
their  interior  custom-houses,  adopted  the  Prussian  proposal 
of  a  maximum  duty  of  10%  ad  valorem  on  foreign  manufac¬ 
tures  of  which  nothing  was  prohibited,  varied  the  rate  of 
duties  below  that  figure  from  time  to  time,  after  1851  ad¬ 
mitted  the  raw  materials  of  manufactures  free  or  nearly  so, 
found  that  each  of  them  without  exception  had  a  larger  reve- 

1  L.  Cossa’s  Primi  Element!  di  Economia  Politica,  and  autograph  letter  from  the 
name;  Blanqui’s  llist.  Pol.  Econ.,  pp.  260,  266,  523;  Appletons’Cyclo.,  Art.  Political 
Economy  ;  and  Chambers’  Cyclo.,  Art.  Genovesi. 


HISTORY  OF  THE  SCIENCE. 


75 


nue  than  before  joining  the  Zollverein,  witnessed  an  immense 
progress  of  trade  and  industry  in  all  Germany  under  this 
arrangement,  and  thus  became  gradually  prepared  through 
the  benefits  of  this  commercial  union  for  that  more  intimate 
political  union  under  the  new  empire  which  was  consum¬ 
mated  in  1871.  The  empire  is  a  union  of  separate  States, 
like  our  own  government ;  and  all  commercial  affairs,  tariffs, 
and  taxes,  are  now  managed  by  the  Bundesrath ,  or  imperial 
senate,  in  wThich  all  the  States  are  represented  by  annual 
election,  and  over  which  presides  the  imperial  chancellor 
ex  officio.  The  principles  of  the  Zollverein  were  not  much 
changed  by  the  change  in  the  form  of  government.  A  few 
simple  classes  of  foreign  articles,  on  which  duty  is  charged  ; 
a  low  scale  of  duties  on  each,  almost  wholly  specific  rather 
than  ad  valorem ,  — mostly  by  weight ;  no  internal  barriers  at 
all ;  very  few,  if  any,  duties  on  exports ;  a  rising  customs 
revenue  distributed  among  the  States ;  a  yearly  chance  of 
changing  the  rates  of  impost,  and  hence  of  experiment  and 
of  reaction  ;  a  new  coinage  of  gold,  and  a  new  metrical  sys¬ 
tem,  for  the  whole  of  Germany ;  the  trial  of  an  universal 
income-tax  ;  and  some  new  political  combinations  within  the 
empire  on  the  ground  of  supposed  commercial  exigencies  ;  — 
were  the  main  features  during  1871-81  of  this  customs  and 
commercial  union  embracing  nearly  45,000,000  of  people. 
It  seldom  falls  to  the  lot  of  an  individual  thinker  to  teach 
such  impressive  lessons  as  may  be  learned  from  these  great 
movements.  A  similar  system  united  in  1851  the  different 
provinces  of  the  Austrian  Empire,  and  similarly  gratifying 
results  followed  unity  and  simplicity  in  trade  regulations. 

The  Congress  of  German  Political  Economists,  which  first 
met  in  1858,  and  whose  meetings  have  been  annual  since  in 
one  of  the  chief  cities  of  the  empire,  though  entirely  non- 
political,  has  contributed  greatly  to  the  liberal  imperial  legis¬ 
lation,  such  as  the  abolition  of  the  usury  laws,  of  the  old 
laws  binding  certain  men  to  the  soil,  and  of  the  remnants  of 
the  old  guilds  and  other  mediaeval  rules.  The  chance  of 


76 


POLITICAL  ECONOMY. 


a  new  political  combination  turned  Bismarck  towards  com¬ 
mercial  restrictions  in  1880,  which  lessened  the  direct  influ¬ 
ence  of  this  Society,  a  majority  of  whose  members  are 
decided  free-traders,  but  their  indirect  weight  in  moulding 
public  opinion  and  in  shaping  economical^  and  social  legisla¬ 
tion  is  said  to  be  great.  To  reach  the  end  now  in  view  there 
is  no  need  of  mentioning  many  of  the  German  authors. 
Friederich  List,  an  early  champion  of  the  Zollverein,  some 
time  also  a  resident  of  the  United  States,  wrote  largely  both 
in  English  and  German  in  the  second  quarter  of  the  19th 
century,  using  especially  the  periodical  press  as  a  means  of 
influence.  Though  a  mercantilist  in  his  writings,  he  dis¬ 
played  a  multifarious  activity  on  both  continents  in  behalf 
of  many  liberal  schemes  till  his  suicide  in  1846.  K.  H.  Rau 
of  Heidelberg  was  author  of  a  text-book  much  used  in  Ger¬ 
many  for  about  thirty  years,  and  was  for  about  the  same 
time  a  forcible  lecturer  in  one  of  the  large  auditoriums  of  the 
university.  Lorenz  Stein  of  Kiel  and  Vienna,  perhaps  the 
first  to  examine  historically  and  scientifically  the  socialist 
movement  in  France  and  elsewhere,  was  a  copious  writer 
on  legal  and  economical  subjects  in  1841-75,  a  stickler  for 
the  rights  of  private  property  as  against  all  the  vagaries  of 
communism,  and  a  zealous  free-trader  as  against  all  legalized 
barriers  to  exchange.  Socialism  is  first  and  last  hostility  to 
the  acquisition  or  exclusive  use  of  Capital  by  any  person  or 
association  under  the  control  of  the  state.  Quite  a  number 
of  the  professors  in  the  German  universities  wrho  lecture  on 
political  economy  have  given  to  a  certain  degree  the  hand  of 
fellowship  to  socialism.  These  have  passed  under  the  name 
of  Katheder-Socialisten ,  or  socialists  in  professors’  chairs, 
in  distinction  from  the  workingmen  who  have  been  the  soul 
of  the  movement.  u  This  scientific  socialism ,”  says  Mehring, 
u  distinguishes  itself  by  an  uncommon  number  of  interesting 
characters ;  but  this  advantage  has  a  reverse  side  in  an  entire 
want  of  agreement  both  as  to  their  criticism  of  the  present  or¬ 
der  of  society  and  as  to  their  positive  demands.  They  have 


HISTORY  OF  THE  SCIENCE. 


77 


not  made  any  lasting  impression  on  the  workingmen's  move¬ 
ment.  But  it  is  scientific  socialism  which  to-day  fills  all 
patriotic  hearts  with  anxiety .” 

Johann  Conrad  of  Halle  has  sometimes  been  named  as 
among  these  socialists  of  the  chair ;  but,  at  any  rate,  he  has 
been .  a  clear  writer,  an  influential  thinker,  an  admirable 
lecturer,  and  an  unwearied  statistician.  Wilhelm  Roscher 
of  Leipsic  was  the  most  widely  known  economist  of  Ger¬ 
many  in  the  third  quarter  of  the  10th  century.  His  great 
work,  System  der  Volksw irthsha ft ,  is  in  four  separate  parts, 
of  which  the  first  has  been  translated  into  English  in  two 
large  volumes  under  the  title,  Principles  of  Political  Econ¬ 
omy.  The  German  title  is,  Die  Grundlagen  der  National - 
oconomie.  The  second  part  contains  the  economy  of 
agriculture  and  related  subjects,  —  Nationaloconomie  des 
Ackerbaues.  The  third  part  discusses  manufacturing  indus¬ 
try  and  commerce,  and  the  fourth  the  Economy  of  the  State 
and  the  commune  (Gemeindehaushalt) .  These  books,  as 
well  as  his  History  of  Political  Economy  in  Germany,  are 
exceedingly  learned,  and  are  full  of  statements  of  fact 
gathered  from  every  land.  This  peculiarity  has  given  rise 
to  a  claim  put  forth  in  Roscher’ s  behalf  both  by  his  French 
and  English  translator,  that  he  is  the  founder  and  leader 
of  a  new  school  in  political  economy,  namely,  the  historical 
school.  This  expression  is  much  calculated  to  mislead. 
Roscher  indeed  uses  history  a  great  deal  for  induction  and 
illustration,  and  so,  for  that  matter,  does  Adam  Smith,  and 
many  more.  Roscher  is  not  peculiar  in  this,  except,  it  may 
be,  in  the  extent  to  which  he  carries  it.  A  wide  knowledge 
of  the  facts  of  exchange  in  all  parts  of  the  world  is  very 
useful  to  the  scientific  economist,  but  he  must  have  a  good 
deal  more  furniture  than  that,  if  he  wish  to  extend  his 
science.  Roscher  does  not  seem  to  be  particularly  skilled 
in  generalizations,  which  are  the  substance  of  science,  and 
he  certainly  develops  his  matter  on  a  scheme  furnished  by 
others  rather  than  on  one  devised  by  himself.  He  belongs 


78 


POLITICAL  ECONOMY. 


emphatically  to  the  second  school  of  our  science,  the  one 
founded  by  Adam  Smith.  The  subject  of  the  first  book  of 
his  Grundlagen  is  Production,  of  the  second  book  Circula¬ 
tion,  of  the  third  Distribution,  of  the  fourth  Consumption, 
and  of  the  fifth  Population  ;  terms,  some  of  which  indeed  go 
back  to  the  first  school  of  Quesnay,  but  which  as  so  used  are 
pretty  definite  ear-marks  of  the  second  school.  In  general, 
the  economists  of  Germany  have  unfolded  the  science  in 
too  intimate  a  dependence  on  the  state,  — considering  it  too 
much  in  its  relations  to  public  law  and  administration,  and 
too  little  in  its  own  proper  claims  and  authority.1 

9.  The  United  States  of  America,  in  colonial  vassalage 
and  as  an  independent  nation,  have  furnished  from  the  first 
conditions  favorable  to  the  cultivation  of  economic  studies. 
The  Mother  Country  early  envied  these  Colonies  their  grow¬ 
ing  trade  and  their  natural  manufactures.  The  navigation 
acts  of  1651-G3  grievously  restricted  their  foreign  markets 
and  their  ocean  shipping.  In  1G72,  the  chief  products  of 
the  Colonies,  under  the  style  of  u  enumerated  articles,”  were 
forbidden  to  be  carried  except  through  heavy  duties  even 
from  one  colony  to  another.  In  1698,  colonial  woollens, 
whose  manufacture  had  sprung  vigorously  up  of  its  own 
accord,  were  prohibited  to  be  sold  by  one  colony  to  another. 
Parliament  prohibited  to  the  colonists  the  exportation  of 
hats  in  1732,  and  the  erection  of  mills  for  slitting  and  roll¬ 
ing  iron,  and  of  furnaces  for  making  steel,  in  1750.  The 
first  general  Congress  of  the  Colonies  in  October,  1765, 
resolved  “  xi.  That  the  restrictions  imposed  by  several  late 
acts  of  Parliament  on  the  trade  of  these  coloiiies  will  render 
them  unable  to  purchase  the  manufactures  of  Great  Britain 
The  Revolution  itself  was  a  well  thought-out  movement  of 
resistance  to  parliamentary  laws  restricting  the  rights  and 
the  gains  of  trade.  The  Constitution  of  the  United  States, 

1  Woolsey’s  Communism  and  Socialism,  pp.  4-14,  192;  Woolsey’s  Political 
Science,  i.,  pp.  313,  314;  Roscher’s  Principles  of  Political  Economy,  passim;  Blan* 
qui’s  Hist.  Pol.  Econ.,  Eng.  trails.,  p.  531;  Articles  Iiau,  Roscher,  Stein ,  etc.,  in  the 
Cyclopaedias.  I  have  myself  heard  Iiau  lecture  in  Heidelberg,  and  Conrad  in  Halle. 


HISTORY  OF  THE  SCIENCE. 


79 


i 


while  it  gives  to  the  Federal  Congress  the  power  “to  regu¬ 
late  commerce,”  expressly  forbids  all  taxes  on  exports,  and 
all  inter-state  impediments  to  free  traffic.  Ever  since  the 
present  national  government  went  into  operation  in  1789, 
there  has  been  a  succession  of  public  questions  involving 
economical  principles,  that  have  stirred  more  or  less  deeply 
the  mind  of  the  nation.  The  coinage  laws  from  the  first 
have  been  experiments  as  to  the  relative  value  of  gold  and 
silver;  since  1849,  much  interest  has  attached  to  the  mining 
of  these  in  the  western  half  of  the  continent ;  and  in  the 
eighth  decade  of  the  century,  the  country  was  shaken  from 
one  side  of  it  to  the  other  by  the  perplexing  problem  of 
bimetalism.  The  country  has  had  experience  with  almost 
every  variety  of  paper  money.  There  have  been  two  great 
Banks  of  the  United  States,  State  banks  innumerable  under 
all  sorts  of  regulation,  and  since  18G3  there  has  been  oppor¬ 
tunity  to  watch  the  working  of  a  vast  national  banking  sys¬ 
tem.  The  funding  and  refunding  of  a  great  national  debt 
(1861-81)  opened  the  mysteries  of  fiscal  operations  to  the 
minds  of  the  people.  Tariff  discussions  have  always  been 
in  order  from  1789  till  the  present  time,  and  are  certain  to 
be  continued  into  the  future ;  sometimes  the  masses  of  the 
people  have  been  deeply  interested  in  these,  and  the  fate  of 
political  parties  has  turned  on  them ;  but  the  people  as  a 
whole  have  never  yet  seen,  as  they  will  one  day  see,  how 
they  have  been  imposed  upon  and  impoverished  by  the  plau¬ 
sible  tricks  of  a  tariff. 

Under  all  these  circumstances,  it  would  be  thought  that 
our  people  would  be  uncommonly  well-trained  in  economics. 
But  it  is  not  so.  There  never  has  been  a  national  text-book 
general^  accepted,  such  as  the  English  had  for  a  century  in 
the  work  of  Adam  Smith.  Besides,  our  people  have  never 
been  driven  by  the  pressure  of  want,  or  by  mediaeval  burdens 
of  aity  kind,  to  study  this  science.  Politically  privileged 
classes  have  been  mostly  unknown  in  the  United  States. 
Wars  have  been  infrequent,  and  standing  armies  never 


80 


POLITICAL  ECONOMY. 


allowed  to  suck  up  the  substance  of  the  people.  An  abun¬ 
dance  of  cheap  and  fertile  land  has  been  a  constant  resource 
to  persons  anywhere  crowded  by  competition,  or  in  any  way 
feeling  uncomfortably  the  pressure  of  numbers.  A  virgin 
continent  at  their  free  disposal,  and  the  buoyancy  of  youth 
m  their  hearts,  our  people  have  been  led  to  study  very  little 
their  limitations ,  and  perhaps  least  of  all  their  economic  limi¬ 
tations.  The  enormous  losses  of  their  commercial  crises, 
and  of  their  protective  tariffs,  make  far  less  impression  on 
them  than  they  would  make  on  people  less  fortunately 
placed . 

Then,  too,  a  knowledge  of  economic  science  has  scarcely 
ever  been  a  requisite  for  places  of  honor  and  profit,  —  not 
even  for  the  highest  fiscal  positions.  There  has  been  almost 
no  demand  for  this  kind  of  knowledge.  Of  the  secretaries 
of  the  national  treasury  even,  only  Hamilton,  Gallatin, 
Walker,  McCulloch,  and  Sherman,  could  lay  any  claim  at 
all  to  a  scientific  mastery  of  this  subject.  In  the  entire  list 
of  the  Presidents  of  the  United  States,  Mr.  Garfield  is  the 
only  one,  who  had  to  any  considerable  breadth  and  depth  a 
personal  control  of  this  science.  Only  a  few  members  of 
either  branch  of  Congress  from  the  beginning  on  have  been 
economists  in  the  scientific  sense  ;  what  is  worse,  these  have 
been  regarded  as  scarcely  better  qualified  for  their  place  on 
that  account ;  and,  consequently,  it  cannot  be  said  that  the 
usual  action  of  Congress  has  been  guided  by  much  economic 
wisdom.  The  fiscal  and  commercial  laws  have  often  been 
most  complicated  and  conflicting.  Now  and  then  a  govern¬ 
ment  official  has  distinguished  himself  for  ability  in  special 
parts  of  the  subject:  for  instance,  Mr.  Wells,  as  Special 
Commissioner  of  the  Revenue,  and  since  as  a  private  gentle¬ 
man,  presented  such  facts  and  reasonings  in  relation  to  the 
national  industry,  commerce,  and  money,  as  deserved  and 
received  the  profound  attention  of  the  people ;  Professor 
Walker,  as  the  Superintendent  of  the  two  censuses  of  1870 
and  1880,  furnished  a  thesaurus,  whose  collection  was  guided 


HISTORY  OF  THE  SCIENCE. 


81 


by  the  economic  instinct,  and  whose  facts  are  extremely  use¬ 
ful  for  economic  illustration  ;  Dr.  Linderman,  as  Director  of 
the  Mints,  showed  himself  to  be  a  master  in  all  matters  per¬ 
taining  to  bullion  and  coins  ;  and  Mr.  E.  B.  Elliot,  as  a 
mathematician  and  statistician  of  the  Treasury,  gained  a 
uame  in  many  lands  for  his  science  and  skill. 

The  formal  treatises  on  Political  Economy  in  this  country, 
of  which  the  first  was  written  by  Daniel  Raymond,  1820, 
fall  mostly  into  two  groups,  namely,  first,  those  modelled 
mainly  upon  the  plan  of  Adam  Smith ;  and  second,  those 
modelled  mainly  after  the  ideas  of  Henry  C.  Carey.  Into 
the  first  group  come  easily  the  books  of  Raymond,  Rae, 
Wayland,  Bowen,  Bascom,  Amasa  Walker,  Chapin,  Sturte- 
vant,  and  Professor  Walker.  These  all  belong  to  the  second 
school.  They  all  conceive  of  Political  Economy  as  a  science 
of  “things,”  rather  than  as  a  science  of  persons.  They  all 
arrange  their  matter  for  the  most  part  under  “  Production,” 
“  Distribution,”  “  Exchange,”  and  “  Consumption.”  They 
all  try  to  use  technically  the  concrete  word  “wealth.” 
They  all  seem  to  the  present  writer  to  miss  the  true  doctrine 
of  Credit.  Yet  they  all,  some  more  and  some  less,  furnish 
fresh  contributions  to  the  science  both  in  the  way  of  infor¬ 
mation  and  of  scientific  distinctions.  Of  John  Rae,  1834, 
John  Stuart  Mill  says  :  uIn  no  other  book  knoivn  to  me  is  so 
much  light  thrown ,  both  from  principles  and  history ,  on  the 
causes  which  determine  the  accumulation  of  capital .”  Amasa 
Walker’s  book  presents  much  original  discussion  on  the  sub¬ 
ject  of  Money,  and  has  been  translated  into  Italian  for  the 
collection  of  Boccardo,  already  referred  to.  His  son,  Pro¬ 
fessor  Walker,  in  full  monographs  on  “Wages”  and 
“  Money,”  and  in  his  formal  treatise,  “Political  Economy,” 
(1883),  whose  superstructure  is  worthier  than  its  founda¬ 
tions,  at  once  honored  the  name  of  his  father,  and  gained  an 
enduring  place  in  the  science  for  himself. 

The  other  group  must  be  noticed  the  more  carefully,  because 
Carey  claims  as  original  with  himself  some  of  the  fundamental 


82 


POLITICAL  ECONOMY. 


positions  of  Bastiat.  The  dispute  is  not  very  important, 
because  the  growth  of  science  is  continuous,  and  because  it 
is  difficult  for  any  reader  and  thinker  sharply  to  cut  off  in 
the  work  of  his  mind  what  is  his  own  from  that  of  others. 
It  is  certain  that  these  positions  are  common  to  the  two 
writers  ;  and  it  is  to  be  presumed  that  Bastiat  profited  by 
some  of  the  views  of  Carey,  whose  first  book  dates  from 
1835  ;  but  there  is  more  than  enough  that  is  distinctive  in 
the  two  authors  to  justify  the  claim  of  each  to  originality 
and  merit,  and  also  to  preclude  the  classing  of  Carey  and 
his  followers  in  the  third  great  school  of  economists.  In 
some  respects  they  belong  to  that  school,  and  they  certainly 
do  not  belong  to  the  second  school ;  but  in  other,  and  espe¬ 
cially  in  practical,  respects,  they  are  a  knot  by  themselves, 
—  they  are  a  group  and  not  a  school.  Certain  peculiarities 
of  Carey  himself  cling  to  all  his  followers,  and  these  are 
such  as  make  it  almost  certain  that  the  group  will  never 
become  a  school. 

Carey’s  father  was  an  Irish  exile,  and  one  of  the  founders 
of  the  Hibernian  Society  in  Philadelphia  in  1793,  the  year 
of  his  son’s  birth.  He  was  a  constant  writer  on  party  poli¬ 
tics,  political  economy,  and  social  questions.  The  main 
thought  in  a  series  of  Essays  published  by  him  in  1822  was 
the  excellent  one,  which  also  runs  through  the  writings  of 
his  son,  namely,  that  u  there  is  a  complete  identity  of  interest 
between  agriculture ,  manufactures ,  and  commerce .”  But  he 
hated  England  with  all  the  fervor  of  a  Celt.  The  biogra¬ 
pher  of  the  son,  Dr.  William  Elder,  and  one  of  his  zealous 
followers,  admits  that  his  passionate  hostility  to  the  British 
system  of  foreign  trade  and  the  connected  system  of  political 
economy,  took  something  of  the  temper  and  tone  of  national 
prejudice,  adding,  u  His  father  was  an  Irish  patriot  and  a 
political  exile  from  the  land  of  his  birth.  Something  heredi¬ 
tary  may  be  detected  running  with  much  of  the  pristine  force 
of  blood  through  the  life  and  character  of  his  son.”  Dr. 
Elder  also  says:  u  He  sometimes  clinched  his  deliverances 


II I  STORY  OF  THE  SCIENCE. 


83 


with  expletives  and  epithets  something  out  of  fashion  in 
society .”  Ad  English  visitor  said  of  him:  “He  is  a  man 
of  plain  speech ,  and  siuears  like  a  bargeman  whenever  Mill's 
name  is  mentioned .”  Now,  a  temperament  and  a  prejudice 
like  tl  is  is  hardly  favorable  to  processes  of  logical  reasoning. 
As  a  matter  of  fact,  Carey  was  not  a  clear  and  cool  economic 
reasoner.  He  had  insight  —  a  plenty  of  it  —  and  made  sev¬ 
eral  important  and  permanent  contributions  to  our  science, 
but  his  system  as  a  whole  is  not  logically  coherent.  It  does 
not  hang  well  together.  His  protectionism,  for  example, 
is  no  outgrowth  of  the  rest  of  the  system,  but  is  rather  in 
direct  contradiction  to  it.  He  was  a  protectionist  appar¬ 
ently,  partly  because  he  hated  England  and  its  policy,  and 
partly  because  he  was  of  Pennsylvania,  whose  iron  and  coal 
are  raised  in  price  by  protective  duties,  and  in  which  state 
have  resided  most  of  his  supporters.  These  are  Stephen 
Colwell,  Peshine  Smith,  William  Elder,  Ellis  Thompson, 
William  Kelley,  Horace  Greele}7,  and  others. 

The  group  are  not  wholly  at  one  as  between  themselves, 
but  in  general  they  all  follow  out  the  points  of  their  leader. 
They  all  exalt  the  individual  nation  as  over  against  the 
world,  as  if  it  could  have  an  independent  development  and 
destiny  separate  from  the  world,  and  would  be  glad  to  have 
their  system  entitled  the  u  national  ”  or  “  nationalist  ” 
Economy.  They  all  emphasize  governments  as  a  large  and 
constant  factor  in  the  ongoings  of  trade,  and  are  not  willing 
to  leave  to  natural  motives  and  to  natural  forces  what  these 
are  perfectly  able  to  care  for  and  conserve.  They  are  all 
protectionists,  just  as  if  tricks  wrought  on  certain  prices 
could  by  any  possibility  enrich  a  whole  people.  They  all 
keep  a  closer  eye  to  the  interests  of  selected  capitalists  than 
to  those  of  general  laborers.  They  are  all  friendly  to  paper 
money  and  a  good  deal  of  it,  and  some  of  them  have  no 
objection  to  irredeemable  paper  money.  Most  of  them  try 
to  draw  a  distinction  between  economy  as  a  science  and 
economy  as  an  art.  All  of  them  show  a  reluctance  to  look 


84 


POLITICAL  ECONOMY. 


into  the  inmost  nature  of  trade,  to  begin  at  the  beginning,  to 
analyze  simple  instances,  to  display  the  motives  and  gains 
of  exchanges,  and  then  to  go  on  clearly  and  logically  through 
the  deeper  portions  of  the  subject.  This  lack  of  consistent 
logic  makes  the  group  weak  with  reasoning  and  reasonable 
men,  notwithstanding  the  good  service  done  to  our  science 
by  some  of  them.  Among  the  central  points  of  Carey  and 
his  followers  may  be  enumerated  these :  That  land  gains  its 
value  from  labor ;  that,  generally,  poorer  soils  are  first  culti¬ 
vated,  then  those  more  fertile  and  difficult ;  that,  what  would 
be  the  cost  of  their  reproduction  rather  than  their  actual  cost 
of  production,  determines  the  value  of  commodities ;  that 
the  interests  of  classes  and  individuals  are  really  harmonious  ; 
that  there  is  a  tendency  to  increase  in  the  wages  of  labor,  and 
to  diminution  in  the  rate,  though  increase  in  the  aggregate, 
of  the  profits  of  capital ;  that  the  advancement  of  society 
corresponds  to  the  degrees  of  association  and  liberty  in  it ; 
and  that  the  prices  of  land,  labor,  and  raw  materials  tend 
to  approach  the  prices  of  finished  commodities. 

What  may  perhaps  properly  be  called  the  Katheder- 
Oeconomisten ,  or  Economists  of  the  Chair,  have  been  prom¬ 
inent  in  the  United  States.  The  colleges  were  late  in 
instituting  these  chairs,  few  of  them  being  earlier  than  the 
middle  of  the  century,  but  since  that  time  their  occupants 
have  exerted  a  large  influence  on  the  educated  young  men 
of  the  country  directly  by  their  teachings  and  on  all  classes 
indirectly  by  their  writings.  Among  the  more  prominent  of 
these  teachers  have  been  Sumner  at  New  Haven,  who  had 
the  advantage  of  entering  on  the  thorough  tillage  of  a  field 
already  well  ploughed  by  Woolsey,  and  who  in  his  books  on 
“Currency”  and  “Protection”  and  in  strong  articles  in 
various  periodicals  supplemented  a  powerful  influence  ex¬ 
erted  orally  upon  his  immediate  students ;  Diman  at  Provi¬ 
dence,  who  had  a  worthy  predecessor  in  Wayland,  and  who 
added  force  to  sound  economic  teaching  by  a  great  beauty 
of  personal  character  ;  Dunbar  at  Cambridge,  who  had  Bowen 


HISTORY  OF  THE  SCIENCE. 


85 


before  him  as  no  mean  economist,  and  whose  own  work  is 
not  to  be  disparaged  because  he  was  inclined  to  disparage 
the  work  of  his  colaborers ;  Chapin  at  Beloit,  who  taught 
enthusiastic  classes  in  college,  and  who  edited  and  revised 
Wayland  and  afterwards  wrote  a  book  of  his  own  ;  Sturte- 
vant  at  Jacksonville,  who  in  his  book  indeed  wrestled  in  vain 
with  the  irreducible  word  “  wealth  ”  while  presenting  to  his 
readers,  and  doubtless  also  to  his  pupils,  a  mass  of  economic 
truth  in  a  popular  way  ;  Canfield  at  Lawrence,  whose  effec¬ 
tive  work  in  economics  is  all  the  more  to  be  noticed,  because 
the  bulk  of  his  instruction  was  given  along  another  line  ;  and 
Thompson  at  Philadelphia,  who  iu  a  widely  circulated  treatise 
and  in  oral  instruction  tried  hard  to  round  down  to  a  circle 
some  of  the  worst  tangents  of  Carey.  The  result  of  all  this 
painstaking  instruction  has  been  a  generation  of  compara¬ 
tively  young  men  much  better  versed  than  their  fathers  in 
the  principles  of  our  science. 

The  only  American  books  that  belong  unequivocally  to  the 
third  school  of  Political  Economy  are  the  two  books,  of  which 
the  one  now  in  hand  dates  from  1865,  of  the  present  writer. 
The  great  honor  was  given  to  him  to  associate  his  name  with 
Condillac,  Whately,  Bastiat,  and  Chevalier,  the  heads  of  this 
school,  by  Macleod,  its  most  distinguished  representative 
in  Great  Britain,  in  the  first  volume  of  his  “Principles  of 
Economical  Philosophy”  issued  in  1872.  Macleod’s  own 
name  at  any  rate  is  sure  to  stand  in  that  list  in  all  time  to 
come.  His  “Elements  of  Economics,”  published  in  1881, 
restated  with  exhaustive  learning  and  ability  the  grounds  on 
which  the  third  school  build,  and  in  which  they  have  such 
confidence  as  to  believe  that  there  never  will  be  another  school 
substantially  different  from  their  own.  We  have  called  this 
the  All  Sales  School  iu  distinction  from  the  Agricultural 
School  of  Quesnay  and  the  Commodities  School  of  Adam 
Smith. 

A  brief  reference  to  Henry  George,  whose  “  Progress  and 
Poverty  ”  made  a  great  noise  in  the  years  1880-81,  will  con- 


86 


POLITICAL  ECONOMY. 


elude  the  section  and  the  chapter.  It  is  impossible  not  tc 
admire  the  earnestness  and  personal  conviction  of  this  Cali¬ 
fornia  writer.  In  the  preface  to  the  fourth  edition  he 
says :  u  Bat  there  has  been  nothing  in  the  criticisms  they  have 
received  to  induce  the  change  or  modification  of  these  views. 
In  fact ,  I  have  yet  to  see  an  objection  not  answered  in  advance 
in  the  book  itself.”  If  he  were  a  few  years  before,  as  is 
implied  on  page  283,  an  artisan  working  at  his  trade,  it 
is  difficult  not  also  to  admire  the  learning,  the  literary 
skill,  and  the  dialectic  push,  displayed  in  this  book.  Never¬ 
theless  it  starts  from  wrong  data,  and  proceeds  to  an  utterly 
false  conclusion.  The  author,  like  so  many  others  before 
him,  is  helplessly  entangled  in  the  word  “wealth,”  and 
completely  mistakes  the  nature  of  land  as  a  valuable  thing, 
not  drawing  the  essential  distinction  between  land  as  a 
physical  gift  from  the  hand  of  God  and  land  as  made  and 
kept  valuable  by  the  efforts  of  men.  Consequently  he  thinks 
that  the  private  ownership  of  land  is  a  misappropriation  of 
the  gifts  of  God.  “  If  we  are  all  here  by  the  equal  permis¬ 
sion  of  the  Creator ,  we  are  all  here  with  an  equal  title  to  the 
enjoyment  of  his  bounty  —  u nth  an  equal  right  to  the  use  of 
all  that  nature  so  impartially  offers.  This  is  a  right  that  is 
natural  and  inalienable;  it  is  a  right  that  vests  in  every  human 
being  as  he  enters  the  world ,  and  ivhich  during  his  continu¬ 
ance  in  the  world  can  be  limited  only  by  the  equal  rights  of 
others.  There  is  in  nature  no  such  thing  as  a  fee  simple  in 
land.  There  is  on  earth  no  power  ivhich  can  rightfully  make 
a  grant  of  exclusive  ownership  in  land.”  (p.  304.)  Accord¬ 
ingly  he  finds  the  cause  of  Poverty,  and  of  commercial 
depressions  also,  in  the  rent  of  land.  He  thinks  that 
industrial  Progress  would  be  promoted  if  the  state  would 
appropriate  to  itself  for  the  benefit  of  all  in  the  way  of 
taxation  all  landed  rents.  But  is  not  rent  a  return  for  a 
service  rendered  ?  And  if  the  rent  be  confiscated  would  the 
service  continue  to  be  rendered?  It  follows  from  his  prem¬ 
ises,  that,  as  rents  increase,  wages  of  labor  and  interest  of 


HISTORY  OF  THE  SCIENCE. 


87 


capital  must  fall ;  or,  as  he  puts  it,  u  As  rent  arises ,  interest 
will  fall  as  wages  fall.”  (p.  183.)  But  well-known  facts  dis¬ 
prove  this.  Rent,  wages,  and  interest  sometimes  rise  or  fall 
together.  All  three  have  been  higher  in  England  than  they 
were  130  years  ago  during  the  last  30  years.  In  spite  of 
these  radical  errors  which  mar  and  cut  the  main  drift  of  his 
book,  it  is  a  pleasure  indeed  to  find  him  as  radically  opposed 
to  other  and  current  economic  errors.  He  speaks  (p.  270) 
of  “  the  robbery  involved  in  the  protective  tariff  of  the  United 
States ,  which  for  every  twenty-five  cents  it  puts  into  the  treas¬ 
ury  takes  a,  dollar ,  and  it  may  be  four  or  five,  out  of  the  pocket 
of  the  consumer.”  He  is  equally  opposed  to  the  current 
notions,  u  that  there  is  a  necessary  conflict  between  capital 
and  labor ,  that  machinery  is  an  evil,  that  competition  must 
be  restrained  and  interest  abolished,  that  wealth  may  be  cre¬ 
ated  by  the  issue  of  money,  and  that  it  is  the  duty  of  Govern¬ 
ment  to  furnish  capital  or  to  furnish  work.” 

Let  us  now  put  into  a  summary  the  main  points  of  the 
chapter. 

1.  Every  science  grows  slowly,  and  a  brief  study  of  the 
steps  of  this  growth  paves  the  way  for  scientific  analysis  and 
discussion. 

2.  The  earliest  oriental  civilization  f  urnished  the  loeiglits  and 
measures  and  moneys  for  the  early  commerce  of  the  nations. 

3.  The  Greeks  first,  and  of  the  Greeks  Aristotle  most,  laid 
the  foundations  of  Political  Economy. 

4.  The  Homan  Law  is  a  mine  of  distinctions,  definitions , 
and  even  discussions  relating  to  our  subject. 

5.  The  Middle  Age  was  a,  jumble  of  men  and  measures, 
some  for  and  some  against  the  rights  and  gains  of  a  broad 
traffic. 

6.  The  wonderworking s  of  capital  were  first  shown  to  the 
world  on  a  grand  scale  by  the  Jews. 

7.  The  Hanseatic  League,  the  English  and  Italian  town , 
and  the  thrift  of  Charlemagne,  greatly  developed  commerce. 

8.  The  fall  of  Constantinople  drove  to  the  West  arts  and 
artisans  and  abiding  riches. 


88 


POLITICAL  ECONOMY . 


9.  Four  great  Theories  of  Sales  and  Three  great  Schools  of 
Economy  have  followed  each  other. 

10.  France  stands  first  of  modern  nations  in  an  economic 
view ,  partly  because  two  of  these  Theories  and  two  of  these 
Schools  are  French. 

11.  British  economists  have  been  distinguished  within  the 
limits  of  the  second  School. 

12.  In  substance  of  doctrine ,  though  not  perhaps  in  scien¬ 
tific  form ,  the  third  seems  likely  to  be  the  School  of  the  Future. 


FIELD  OF  THE  SCIENCE. 


89 


CHAPTER  II. 

FIELD  OF  THE  SCIENCE. 

The  foregoing  chapter  has  taught  indirectly  hut  effectively 
what  is  in  a  general  way  the  subject-matter  of  our  science, 
and  also  what  have  been  the  main  currents  of  human  thought 
about  it.  This  is  a  great  gain  at  the  outset,  and  justifies 
an  historical  chapter  at  the  beginning,  which  one  might 
think  would  be  more  logically  placed  at  the  close.  The 
next  step  is  to  determine  exactly  what  this  subject-matter  is. 
Thus  far  we  have  spoken  loosely  of  our  “  science,”  without 
strictly  defining  that  important  term.  It  is  time  now  to  in¬ 
quire,  first,  what  a  “science”  is,  and  second,  what  is  the 
precise  Jield  of  Political  Economy  among  the  sciences. 

A  Science  is  the  body  of  exact  definitions  and  sound  prin¬ 
ciples  educed  from  and  applied  to  a  single  class  of  facts  or 
phenomena. 

In  this  general  definition  of  a  science,  in  which,  as  cover¬ 
ing  all  the  cases  and  including  all  that  is  essential,  a  full 
trust  may  be  put,  the  word  “  body  ”  is  used  in  its  pregnant 
sense  as  implying  an  organic  arrangement  of  parts.  A  jum¬ 
ble  of  even  true  definitions  and  principles  does  not  make 
a  science,  but  only  these  when  placed  in  a  just  order  and 
dependence.  As  in  the  human  body  all  the  parts  are  recip¬ 
rocally  means  and  ends,  so  in  a  science  all  the  definitions 
and  principles  and  illustrations  must  be  so  arranged  as  to 
make  up  a  s}Tmmetrical  whole. 

It  will  be  noticed  also,  that  this  definition  applies  to  any 
science  in  all  stages  of  its  growth.  No  science  is  yet 
completed  ;  but  just  so  soon  as  any  correct  definitions  and 


90 


POLITICAL  ECONOMY. 


principles  are  drawn  from  and  applied  to  any  class  of  things, 
and  these  definitions  and  principles  are  orderly  arranged 
in  a  body ,  there  is  an  incipient  science  ;  and  its  progress 
towards  perfection  will  proceed  in  precisely  the  same  manner 
in  which  its  foundations  have  been  laid  ;  new  definitions  and 
principles  will  gradually  be  discovered,  and  these  when 
applied  to  the  class  of  things  from  which  they  have  sprung 
will  lead  to  corrections  and  readjustments  and  enlargements 
of  the  science ;  and  no  matter  how  far  these  processes  may 
be  carried,  the  general  definition  with  which  we  start  will 
also  be  found  ample  at  the  end  of  the  journey. 

It  follows,  that  the  first  grand  condition  of  any  science  is, 
that  there  must  be  a  class  of  facts  to  begin  with  ;  and  this 
class  must  be  perfectly  separated,  in  the  mind  by  the  concep¬ 
tion  and  in  the  words  by  the  definition,  from  all  other  classes. 
The  class  as  defined  must  include  every  thing  that  has  the 
quality  for  the  sake  of  which  the  investigation  is  had.  There 
can  be  no  ragged  edges.  From  the  very  nature  of  a  science 
as  a  body ,  and  from  the  mode  in  which  alone  it  can  be  built 
up,  it  cannot  tolerate  facts  that  come  partially  but  not 
completely  under  its  fundamental  conception.  This  must 
be  widened  to  take  completely  in  all  things  and  all  phe¬ 
nomena  just  so  far  as  they  possess  the  quality  in  hand,  or 
narrowed  so  as  to  shut  wdiolly  out  all  things  and  phenomena 
in  so  far  as  they  do  not  possess  this  quality.  The  concep¬ 
tion  must  embrace  and  the  definition  constitute  a  strict  class 
of  things,  that  is  to  say,  include  all  things  that  really  belong 
together  for  the  purposes  of  the  investigation.  Thus  arith¬ 
metic,  for  example,  as  the  science  of  number,  must  be 
inclusive  of  all  things  whatsoever  that  can  be  numbered, 
while  the  other  qualities  of  those  very  things  may  well  sub¬ 
ject  them  to  still  other  sciences.  So  ethics,  as  the  science 
of  duty,  must  just  cover  those  feelings  and  actions  that  have 
in  them  the  owy /^-quality.  So  economy,  if  it  be  the  science 
of  sal°s,  must  consider  those  things  (and  only  those)  that 
arc  bought  and  sold :  salableness  will  be  the  quality  consti- 


FIELD  OF  THE  SCIENCE . 


91 


tilting  the  class  of  things  with  which  the  science  is  conver- 
sant.  It  follows  from  all  this,  that  the  terms  and  conclusions 
of  any  science  are  of  necessity  general  and  not  particular. 

The  second  grand  condition  of  the  building  up  of  any 
science  is,  that  the  class  of  facts  to  which  it  relates  be  open 
to  the  processes  of  Induction,  Deduction,  or  both.  Philo¬ 
sophical  induction,  which  is  the  main  instrument  in  the 
building  up  of  sciences,  is  the  act  of  inferring  that  what  has 
been  observed  and  established  in  respect  to  a  sufficient  part 
may  be  safely  affirmed  and  received  in  respect  to  the  whole; 
that  what  has  been  found  to  be  true  iu  a  certain  number  of 
individuals  will  be  found  to  be  true  of  the  whole  species  to 
which  they  belong ;  that  when  a  due  number  of  particulars 
have  been  examined  and  their  peculiarities  ascertained,  the 
same  peculiarities  may  be  predicated  of  their  generals ,  how¬ 
ever  comprehensive.  The  process  of  induction  proceeds 
upon  the  axiom  that  Nature  is  consistent  with  herself. 
Accordingly,  when  certain  things  are  shown  to  be  uniformly 
true  in  a  considerable  number  of  cases,  the  mind  naturally 
passes  over  from  these  cases  to  a  whole  class,  and  frames 
for  itself  a  general  rule  or  principle,  which  binds  all  the 
cases  into  one  bundle,  and  thereafter  affirms  what  is  known 
to  be  true  of  some  to  be  probably  true  of  all.  This  is  Gen¬ 
eralization.  It  has  as  a  basis  a  confidence  in  the  resem¬ 
blances  and  analogies  of  Nature ;  and  this  confidence  is 
justified  in  the  issue,  when  it  is  found  that  Nature  pre-or¬ 
dained  the  sciences  by  causing  grand  resemblances  to  run 
through  each  department  of  her  works  including  man  and 
his  works.  Lord  Bacon  was  the  first  to  explain  fully  the 
ground  and  the  mode  of  philosophical  induction,  and  hence 
it  is  sometimes  called  the  Baconian  method  of  reasoning. 
Inductions  have  to  be  tested,  in  order  to  make  sure  that  they 
are  correct;  and  one  way  of  testing  them  is  by  Deduction, 
which  will  be  explained  in  a  moment.  The  only  other  way 
of  testing  an  induction  is  by  other  inductions  in  different 
terms  so  taken  as  to  show  the  validity  of  the  first.  These 


92 


POLITICAL  ECONOMY. 


subsidiary  inductions  aud  deductions  are  sometimes  called 
Verification,  which  is  not  a  new  process  at  all. 

Descartes  thought  he  had  a  test  of  the  truth  of  a  general¬ 
ization  in  the  vividness  and  strength  with  which  the  concep¬ 
tion  came  home  to  his  mind.  He  says:  “  Credidi  me  pro 
regula  generedi  sumere  posse  id  quod  valde  dilucide  et  dis- 
tincte  concipiebam  verum  esse.”  I  have  thought  that  I  could 
take  as  a  just  generalization  that  which  I  very  clearly  and 
vividly  conceived  to  be  true.  Probably  it  is  hard  sharply  to 
distinguish  the  scientific  satisfaction  —  the  joy  of  a  new 
generalization  —  from  the  skill  to  use  the  scientific  process  ; 
clearness  is  indeed  a  part  of  the  proof,  since  the  reliance 
is  wholly  on  the  free  action  of  one’s  own  mind ;  and  so  far 
forth  Descartes  is  undoubtedly  and  interesting^  right ;  but 
the  truth  remains,  that  the  result  of  a  process  of  scientific 
reasoning  can  only  be  confirmed  or  overturned  by  another 
process  of  scientific  reasoning.  Sometimes  a  single  experi¬ 
ment  is  enough  to  establish  an  induction,  as  when  Franklin 
with  his  kite  and  key  proved  the  identity  of  lightning  with 
electricity  ;  but  more  commonly  repeated  observations,  exper¬ 
iments,  or  experience,  are  needful,  such  as  those  that  have 
proved  the  law,  that  rising  prices  follow  a  depreciated 
money. 

Deduction,  on  the  other  hand,  is  the  process  by  which, 
beginning  with  a  general  truth,  which  itself  probably  has 
been  inductively  ascertained,  we  seek  to  connect  that  with 
some  particular  case  by  means  of  a  middle  term,  or  class 
of  objects,  known  to  be  equally  connected  with  both.  Thus 
we  bring  down  the  general  into  the  particular,  affirming  of 
the  latter  the  distinctive  qualities  of  the  former.  Deduction 
is  thus  the  opposite  process  to  Induction.  Inductively  we 
pass  up  from  less  to  more  inclusive  propositions,  and  deduc¬ 
tively  we  pass  down  from  more  to  less  inclusive  propositions. 
Both  processes  intermingle  continually  in  scientific  reason¬ 
ings,  and  nothing  else  is  strictly  reasoning  but  the  use  of  one 
or  the  other  of  them.  Bacon  put  his  great  stress  on  Indue- 


FIELD  OF  THE  SCIENCE. 


93 


tiou,  because  he  headed  a  reaction  from  the  Aristotelian 
logic  which  was  deductive,  yet  he  did  not  overlook  the  true 
place  of  Deduction,  for  he  says  : 1  “  Axioms  duly  and  orderly 
formed  from  particulars  easily  discover  the  way  to  new  partic¬ 
ulars ,  and  thus  render  sciences  active .”  Just  now  we  noted 
Franklin’s  famous  experiment  as  leading  to  the  induction 
that  lightning  and  electricity  are  identical.  The  generaliza¬ 
tion  having  been  gained,  deduction  has  a  chance  to  work 
now.  It  had  long  been  observed  that  electricity  could  be 
conducted  from  point  to  point ;  if  electricity,  then  lightning  ; 
therefore,  inferred  Franklin,  a  pointed  iron  rod  elevated 
above  buildings  will  conduct  lightning  from  the  clouds  into 
the  ground.  The  lightning-rod  is  the  gift  of  deduction. 
Whenever  a  general  rule  reached  by  careful  induction  can 
be  fortified  by  a  deduction  from  a  more  general  law  that  has 
been  inductively  framed  and  in  which  confidence  is  felt,  that 
rule  is  almost  certainly  true.  For  example :  we  say  that 
apple-tree  blossoms  are  five-petaled,  because  blossoms  from 
a  large  number  of  trees  in  many  localities  have  been  ob¬ 
served  to  have  just  five  petals ;  in  that  case,  we  affirm 
inductively ;  but  the  botanists  lay  down  a  law  that  they 
have  reached  by  induction,  that  outside-growers,  when  they 
have  petaled  flowers,  have  them  five-fold ;  now  apple-trees 
are  outside-growers ;  and  therefore,  deductively  also,  apple- 
tree  blossoms  are  five-petaled.  As  this  point  is  important, 
let  us  take  a  second  example  from  economics.  It  has  been 
observed  in  a  score  of  cases  that  the  use  of  an  inferior 
mone}’  is  followed  by  a  rise  of  prices,  and  no  instances  to 
the  contrary  are  recorded ;  the  rule  is  perhaps  sufficiently 
made  out  by  induction  ;  but  when  we  can  deduce  beforehand 
the  same  rule  from  the  nature  of  money  as  a  measure  of 
values,  the  rule  becomes  as  certain  as  any  thing  can  be  made 
by  reasoning. 

The  sciences  fall  easily  into  three  great  classes,  namely, 
the  Exact,  the  Physical,  and  the  Moral,  sciences.  The 

Novum  Organon ,  1,  24,  quoted  by  Macleod  in  Econ.  Phil.,  chap.  i. 


94 


POLITICAL  ECONOMY. 


exact  sciences  consist  only  of  the  formal  Logic,  and  pure 
Mathematics.  These  are  wholly  deductive.  Stuart  Mill 
argues  at  much  length  in  his  “  Logic  ”  that  even  the  axioms 
of  pure  mathematics  are  originally  gained  by  induction, 
while  others  claim  that  their  truth  is  perceived  intuitively , 
but  no  matter  how  this  point  is  decided,  the  processes  of  the 
mathematics  are  from  the  general  to  the  particular.  So  it 
is  also  with  the  Aristotelian  logic,  whose  major  premise, 
whether  only  supposed  to  be  true  or  having  been  inductively 
proved ,  is  always  general  in  terms.  This  is  the  form  of  the 
syllogistic  logic  :  — All  sinners  deserve  to  be  punished  ;  John 
Roach  is  a  sinner ;  therefore  John  Roach  deserves  punish¬ 
ment. 

Physical  sciences  are  those  concerned  with  the  classifica¬ 
tions  and  laws  of  action  belonging  to  material  substances. 
There  are  a  great  circle  of  these.  They  have  been  mostly 
developed  since  the  time,  and  in  accordance  with  the 
methods,  of  Lord  Bacon.  They  are  such  as  Astronomy, 
Acoustics,  Botany,  Chemistry,  Dynamics,  Geology,  Optics, 
Physiology,  Statics,  and  Zoology.  The  subject-matter  of 
each  of  the  physical  sciences  is  open  to  observation  and 
experiment,  to  induction  and  deduction,  and  to  corrective 
verifications,  in  the  manner  already  pointed  out.  Each  of 
these  sciences  has  a  distinct  class  of  objects  or  phenomena 
to  which  its  attention  is  directed  ;  the  class  is  circumscribed 
by  the  scientific  conception  and  definition  ;  its  devotees  as 
a  rule  are  skilled  in  using  the  Baconian  tools  ;  and  conse¬ 
quently,  its  conclusions  receive  the  confidence  and  control 
the  action  of  men.  All  of  the  physical  sciences  are  con¬ 
stantly  enlarging  “the  body  of  exact  definitions  and  sound 
principles”  connected  with  their  several  classes  “of  facts 
or  phenomena.” 

Moral  sciences  are  those  concerned  with  the  classifications 
and  laws  of  action  belonging  to  beings  having  thoughts  and 
desires  and  will.  Among  these  sciences  may  be  mentioned 
Metaphysics,  Ethics,  and  Economics.  Each  of  these,  and 


FIELD  OF  THE  SCIENCE. 


95 


of  all  other  moral  sciences,  is  concerned  with  a  single  class 
of  phenomena,  which  may  be  exactly  conceived  of  and 
defined.  But  induction  cannot  march  up  with  quite  so  sure 
a  stride,  nor  deduction  descend  with  so  large  a  degree  of 
certainty,  in  relation  to  persons  endowed  witli  free-will,  as  in 
relation  to  physical  substances  held  firm  in  the  grip  of  un¬ 
varied  law.  Still,  the  doubt  attaches  far  more  to  the  actions 
of  an  individual  than  to  the  actions  of  the  masses  of  men. 
It  is  much  easier  to  know  human  nature  in  general  than  one 
man  in  particular,  because  many  inductions  guided  by  obser¬ 
vation  and  history  make  it  almost  certain  how  masses  of  men 
will  act  under  a  given  set  of  conditions,  while  any  individ¬ 
ual  may  act  in  a  contrary  way.  Deduction,  accordingly, 
cannot  hold  quite  the  same  place  in  the  moral  sciences  so 
far  as  individuals  are  concerned,  as  it  holds  in  the  physical 
and  exact  sciences  ;  but  this  lack  is  perhaps  more  than  made 
up  by  other  advantages.  Experience  in  the  moral  sciences 
corresponds  to  experiments  in  the  physical  sciences.  Then 
there  is  the  great  advantage  of  introspection :  each  man  has 
within  himself  the  means  of  interpreting  and  of  testing  the 
inductions  of  metaphysics,  ethics,  and  economics.  Then 
also  there  is  the  great  resource  of  feigned  cases ,  which,  pro¬ 
vided  only  they  be  cases  possible  to  occur,  opeu  up  to  rea¬ 
soning  a  new  means  of  proving  and  correcting.  Besides 
these,  which  it  enjoys  in  common  with  them,  economics,  as 
we  shall  see,  has  one  other  great  advantage  over  and  above 
the  rest  of  the  moral  sciences,  which  all,  moreover,  are 
stronger  and  more  developed  on  account  of  their  close 
relation  to  and  opportunity  of  being  tested  by,  a  Divine 
Revelation,  whose  ends  indeed  are  not  scientific,  but  whose 
methods  and  conclusions  may  often  be  a  test  of  science. 

1.  Let  us  now  apply  the  points  of  this  brief  discussion 
of  the  sciences  in  general  to  the  particular  science  now  in 
hand.  In  the  first  place,  is  there  a  single  class  of  facts 
easily  conceived  of  and  defined  as  such, — easily  circum¬ 
scribed  and  separated  from  all  others,  —  with  which  alone 


96 


POLITICAL  ECONOMY. 


Political  Economy  has  to  do?  We  answer,  Yes.  Sales  are 
a  very  definite  thing.  They  are  never  confounded  with  gifts, 
and  they  are  never  confounded  with  thefts.  They  have  a 
distinctive  character  of  their  own.  They  have  always  been 
in  the  world,  will  always  be  in  the  world  in  ever  multiplying 
volume,  and  no  one  ever  mistakes  their  main  features  for 
something  else.  Political  Economy  is  the  science  of  sales, 
or  exchanges.  Any  thing  whatsoever  that  is  salable,  or  can 
be  made  so,  comes  within  its  view,  and  scientifically  it  cares 
nothing  whatever  for  any  thing  else.  While  it  finds  its  field 
definite,  it  finds  it  also  very  large.  It  has  no  wish  to  en¬ 
croach  on  other  sciences,  nor  will  it  tolerate  any  encroach¬ 
ments  on  its  own.  Before  any  thing  is  sold,  or  is  being  made 
ready  to  sell,  it  cares  not  what  other  science  employs  itself 
upon  that  thing  ;  after  the  thing  is  sold,  economy  loses  its 
interest  in  it,  and  other  sciences  may  take  it  up  if  they 
choose.  Salableness  is  the  one  quality  that  constitutes  the 
class  of  things  with  which  the  science  is  conversant,  and  it 
claims  complete  jurisdiction  over  all  things  just  so  far  forth 
as  they  have  this  quality,  and  no  farther.  Now  there  is  in 
the  actual  world  such  a  class  of  things ;  and  accordingly, 
Political  Economy  possesses  the  first  grand  condition  of  a 
science. 

It  is  at  this  point  that  we  can  see  the  failure  of  some 
otherwise  great  writers  on  Political  Economy.  When  Adam 
Smith  talks  of  “  the  annual  produce  of  land  and  labor,” 
he  gives  us  no  distinct  and  general  conception  of  what  the 
subject  of  Political  Economy  is.  He  does  not  start  with  a 
clearly-defined  class  of  things ;  and,  consequently,  there  is  a 
cloudiness  and  lack  of  scientific  precision  in  some  parts  of 
his  book,  in  striking  contrast  with  the  vigor  and  logical 
sequences  in  the  other  parts.  The  same  is  true  of  John 
Stuart  Mill.  On  his  first  page  he  says,  “Every  one  has  a 
notion  sufficiently  correct  for  common  purposes  of  what  is 
meant  by  wealth.”  A  little  further  on,  “It  is  no  part  of 
the  design  of  this  treatise  to  aim  at  metaphysical  nicety  of 


FIELD  OF  THE  SCIENCE. 


97 


definition  where  the  ideas  suggested  by  a  term  are  already 
as  determinate  as  practical  purposes  require.”  Mill,  then, 
as  embodying  the  conception  that  lies  at  the  basis  of  our 
science,  gives  us  the  word  “  wealth,”  and  assumes  that  both 
he  and  his  readers  have  “a  notion  sufficiently  correct”  of 
what  is  meant  by  that  term  ;  but,  unfortunately,  the  sequel 
shows  how  ill-founded  this  assumption  really  is.  Once, 
indeed,  he  gives  us  a  clear  conception  in  connection  with 
that  word  :  1  ‘  Every  thing  therefore  forms  a  part  of  wealth 
which  has  power  of  purchasing .”  But  he  almost  immedi¬ 
ately  confuses  this  conception,  when  he  says,  “  I  shall 
therefore  in  this  treatise,  when  speaking  of  wealth,  under¬ 
stand  by  it  what  is  called  material  wealth.”  But  a  little 
further  on  he  says,  “  The  skill,  and  the  energy,  and  perse¬ 
verance  of  the  artisans  of  a  country,  are  reckoned  part  of 
its  wealth  no  less  than  their  tools  and  machinery.”  Also, 
“  acquired  capacities  which  exist  only  as  a  means,  and  have 
been  called  into  existence  by  labor,  fall  rightly  as  it  seems 
to  me  within  that  designation.”  But  in  an  another  place 
and  contrariwise,  “The  production  of  wealth  is  the  extrac¬ 
tion  of  the  instruments  of  human  subsistence  and  enjoyment 
from  the  materials  of  the  globe.”  Again,  “  it  is  essential 
to  the  idea  of  wealth  to  he  susceptible  of  accumulation .” 
Also,  “  I  should  prefer,  were  I  constructing  a  new  technicu 
language,  to  make  the  distinction  turn  upon  the  permanence 
rather  than  the  materiality  of  the  product,”  since  services 
“which  only  exist  while  being  performed  cannot  be  spoken 
of  as  wealth  except  by  an  acknowledged  metaphor.”  Stili 
further,  though  credit  is  obviously  neither  material  nor  per¬ 
manent, — •“Credit,  though  it  is  not  productive  power,  is 
purchasing  power.”  And,  “Credit,  in  short,  has  exactly 
the  same  purchasing  power  with  money.” 

These  quotations  are  enough,  and  more  than  enough,  to 
show  two  things  conclusively.  First,  they  show  that  the 
leaders  of  the  second  school  are  inconsistent  with  themselves 
in  their  general  conceptions  of  the  subject-matter  of  the 


98 


POLITICAL  ECONOMY. 


science.  They  begin  nowhere.  They  have  no  steady  class 
of  facts  to  deal  with.  They  have  indeed  demonstrated  many 
important  truths,  and  they  have  done  excellent  practical  ser¬ 
vice  for  the  welfare  of  mankind,  but  in  the  entirety  of  their 
scientific  work  one  can  take  but  little  satisfaction.  It  is  on 
account  of  this  comparative  failure  in  their  scientific  outset, 
tli at  the  second  school  have  declined  in  influence,  and  are  now 
likely  to  be  superseded.  On  the  other  hand,  when  Bastiat 
or  Macleod,  by  their  very  definition  of  the  science,  recognize 
a  definite  class  of  things  with  which  alone  the  science  has 
to  do,  namely,  exchangeable  things,  or  what  means  just  the 
same,  salable  things,  or  what  is  just  the  same,  valuable 
things,  a  clear  conception  is  had  at  once,  having  which  as 
the  prime  condition,  a  true  and  lasting  science  may  be 
obtained,  provided  only  the  next  right  steps  be  taken  also. 
Second,,  they  show  how  useless  the  word  44  wealth”  is  for 
any  scientific  use  whatever  even  in  the  hands  of  a  professed 
logician.  As  we  have  seen,  the  sense  of  this  word  was  too 
indefinite  in  the  mind  of  Mill  to  give  him  any  hold  at  all 
of  a  broad  and  constant  economic  conception,  which  is  the 
first  condition  of  a  true  growth  in  this  science  ;  and  if  this 
be  so,  it  is  certainly  too  indefinite  in  the  minds  of  common 
men  to  make  it  possible  that  it  should  serve  any  useful  sci¬ 
entific  end.  Then  again  the  word  is  too  concrete  to  do  the 
work  assigned  to  it  in  a  broad  definition,  because  in  most 
men's  minds  it  means  only  material  things.  Even  Mill  says, 
“it  is  essential  to  the  idea  of  wealth  to  be  susceptible  of 
accumulation .”  But  he  also  says,  what  is  contradictory  to 
that,  —  4  4  Every  thing  forms  a  part  of  wealth  which  has  pur¬ 
chasing  power.”  Now  material  things  are  not  the  only 
things,  nor  the  most  important  things,  which  have  purchasing 
nower.  Labor  has  purchasing  power.  Bights  have  purchas- 
.ng  power.  If  we  could  determine  the  sums  paid  out  in  this 
country  for  a  year  as  the  wages  of  labor ,  from  those  of  the 
President  of  the  United  States  down  to  those  of  the  common 
day  laborer,  including  the  rewards  of  all  professional  skill ; 


FIELD  OF  THE  SCIENCE. 


99 


and  if  we  could  estimate  the  sums  paid  out  in  the  same  time 
as  a  return  for  rights  of  all  sorts,  such  as  bonds,  shares, 
leases,  and  other  credits ;  we  should  soon  discover  that 
material  things  form  but  a  small  part  of  the  purchasable 
things. 

So  indefinite  and  so  concrete  and  therefore  so  inadequate 
is  the  meaning  of  this  word  “  wealth,”  and  so  prominent 
has  been  made  its  place  near  the  foundations,  that  a  chief 
reason  of  the  slow  progress  of  the  science  hitherto  has  been, 
that  it  tried  to  use  a  word  for  scientific  purposes  which  no 
amount  of  definition  and  explanation  and  manipulation  could 
make  suitable  for  that  sendee.  This  word  has  proved  to 
be  the  bog  whence  most  of  the  mists  have  arisen  that  have 
beclouded  the  whole  subject.  This  is  the  more  to  be  re¬ 
gretted,  inasmuch  as  there  is  no  need  of  the  word  at  all.  It 
is  true,  that  even  Bastiat  and  Macleod  continued  to  use  the 
word  in  subordinate  places  ;  but  there  was  no  advantage, 
but  rather  a  waste  of  strength  in  their  doing  so,  because 
there  are  other  good  words  all  ready  to  take  its  place.  In 
wholly  dropping  the  word  as  a  technical  term,  which  was 
first  done  in  this  book  in  1865,  Political  Economy  lias  dropped 
a  clog,  and  its  movements  are  now  relatively  free  and  certain. 
If  a  general  term  be  needed  to  express  the  sum  of  all  valua¬ 
ble  things  ;  and  if  a  term  be  needed,  as  it  is,  to  express  an 
estimate  of  valuable  things  not  yet  subjected  to  the  test  of  a 
sale  ;  let  that  word  be  Property,  which  in  its  original  Latin, 
and  in  English  also,  has  an  abstract  rather  than  a  concrete 
meaning,  and  denotes  a  right  of  possessing ,  using ,  enjoying , 
selling ,  and  destroying ,  any  thing.  When  used  in  the  follow- 
ing  pages,  the  word  will  always  be  given  the  same  sense  that 
Ulpian  gave  to  it,  namely,  “  That  is  Property  which  can  he 
bought  and  sold;  ”  and  then  the  word  Value  will  always -be 
used  when  a  more  definite  and  technical  term  is  required. 

2.  In  the  second  place,  having  our  definite  class  of  things 
to  begin  with,  are  these  all  open  to  the  common  processes 
of  scientific  generalization?  We  answer,  that  they  are 


100 


POLITICAL  ECONOMY. 


remarkably  thus  open.  Not  one  resource  is  denied  us. 
All  the  tools  of  the  scientific  workshop  are  at  our  hands. 
(a)  The  experience  of  all  the  past  in  the  matter  of  sales 
very  fully  recorded  on  the  pages  of  history,  the  experience  of 
all  the  different  nations  at  the  present  time  in  these  matters 
of  money  and  trade,  and  what  is  passing  right  before  our 
eyes  in  the  buying  and  selling  of  daily  life,  affords  Induc¬ 
tion  all  the  chance  it  could  ask  to  try  its  hand.  Instances 
abound.  Particulars  may  be  gathered  up  one  by  one  and 
linked  into  the  inductive  chain.  If  any  doubt  be  felt  about 
the  strength  of  any  one  of  these  chains,  another  one  may  at 
once  be  forged  in  terms  drawn  from  another  field  of  experi¬ 
ence  with  a  view  to  test  the  strength  of  the  first.  Circum¬ 
stances  in  different  countries  and  in  the  same  country  at 
different  times  do  indeed  differ,  and  care  must  be  taken 
to  avoid  the  common  fallacy,  post  hoc  ergo  propter  hoc  ;  on 
the  other  hand,  the  instances  in  most  cases  are  so  many  and 
varied,  that  there  is  no  great  difficulty  in  throwing  out  right 
and  left  the  non-causal  elements,  and  connecting  in  both 
ways  effects  with  their  causes.  In  this  general  point  of  view, 
the  United  States  is  the  most  fortunate  of  countries,  because 
here  there  are  States  with  substantive  powers  of  control 
over  most  matters  of  trade  within  their  borders,  as  well  as 
a  Nation  with  sovereign  powers  of  control  over  some  points 
of  trade  within  the  country  as  a  whole.  This  feature  has 
given  birth  to  commercial  experiments  of  all  kinds  ;  and 
Induction  rejoices  in  the  abundant  materials  for  generaliza¬ 
tion  thus  furnished  free  of  cost  to  Science,  though  unfortu¬ 
nately  not  free  of  cost  to  the  People.  As  a  single  example 
of  the  inductive  method  in  economics,  let  us  take  the  follow¬ 
ing  :  most  if  not  all  the  States  in  this  Union  have  passed 
at  one  time  or  another  what  are  called  Usury  Laws,  or  laws 
forbidding  lenders  of  money  to  take  more  than  a  given  rate 
of  interest.  It  has  been  uniformly  observed,  that  such  laws 
are  constantly  violated  especially  in  large  towns,  because 
it  is  contrary  to  reason  that  a  man  should  not  sell  the  use 


FIELD  OF  THE  SCIENCE. 


101 


of  his  money  on  the  best  terms  he  can  get,  just  as  he  sells 
the  use  of  any  other  form  of  property  ;  that  such  laws  when 
not  violated  work  essential  injustice  to  the  lender  whenever 
the  market  rate  of  interest  is  higher  than  the  legal  rate  ; 
that  such  laws  so  far  as  obeyed  work  injustice  to  borrowers 
as  tending  to  restrict  the  loan-market,  and  so  far  as  violated 
as  tending  to  compel  them  to  pay  even  more  than  the  market 
rate  as  compensation  to  the  lender  for  law-breaking ;  and 
that  such  laws  often  lead  to  litigation,  chicanery,  and  oppres¬ 
sion  of  the  poor.  The  economist  notiug  ill  effects  in  all  the 
instances  under  his  observation  comes  to  the  clear  conclusion 
inductively  that  usury  laws  are  wrong. 

(6)  We  have  already  seen  that  Deduction  has  not  quite 
the  same  scope  in  the  moral  as  in  the  physical  sciences, 
because  any  individual  may  act  contrary  to  the  probable 
action  of  many  individuals.  Still  deduction  is  a  safe  and 
potent  process  even  in  the  moral  sciences,  since  it  may  de¬ 
scend  securely  from  the  larger  masses  to  the  smaller,  even 
though  the  individual  may  perchance  escape.  This  is  partic¬ 
ularly  true  of  deductive  economics,  owing  to  the  simplicity, 
universality,  and  certainty  of  the  impulses  that  lead  men  to 
exchange.  Well  writes  John  Bascom  :  u  Between  one  dollar 
and  two  dollars  a  man  has  no  choice,  he  must  take  the 
greater ;  between  one  day  and  two  days  of  labor,  he  must 
take  the  less ;  between  the  present  and  the  future,  he  must 
take  the  present.  This  is  not  a  sphere  of  caprice,  nor 
scarce^  even  of  liberty ;  the  actions  themselves  present  no 
alternative,  and,  if  an  alternative  giving  an  opportunity  for 
choice  does  arise,  it  arises  from  some  partial  or  individual 
impulse,  —  from  some  one  of  those  transitory, and  foreign 
influences,  which,  while  rippling  the  surface,  neither  belong 
to  nor  affect  the  current  of  the  stream.”  As  an  illustration 
of  economical  deductions  let  us  look  again  to  the  case  of 
usury  law's.  Jeremy  Bentham  by  a  grand  induction  of  par¬ 
ticulars  reached  the  truth  and  statement,  that  usury  laws  are 
economically  wrong.  His  induction  took  no  note  of  the 


102 


P  OL I  TIC  A  L  EC  ON  ON  Y. 


experience  of  the  people  of  Massachusetts.  But  the  Legis¬ 
lature  of  that  State  in  18G7,  having  become  more  or  less 
familiar  with  the  reasoning  of  Bentham,  and  having  made 
inductions  of  its  own  from  local  and  neighboring  experience, 
passed  down  from  the  generalization,  that  usury  laws  are 
everywhere  injurious,  to  the  specific  proposition,  that  such 
laws  were  injurious  to  the  people  of  Massachusetts,  and  so 
it  abolished  these  laws  for  that  State.  The  deduction  was 
well  taken  ;  and  the  people  have  ever  since  been  pleased 
with  Iheir  liberty  of  contract  in  this  particular.  But  it  must 
not  be  inferred  from  these  instances,  that  induction  and 
deduction  always  pursue  a  separate  and  distinct  path  in 
economical  reasoning ;  for  the  two  processes  commingle 
constantly,  and  neither  is  always  carried  out  in  full  and  due 
form,  since  premises  used  by  the  mind  are  often  dropped  in 
the  statement,  and  shortened  forms  of  expression  take  the 
place  of  long-drawn-out  logical  formulas.  Nevertheless,  all 
good  reasoning  is  analyzable  into  one  or  the  other  of  these 
processes. 

(c)  Economical  reasoning  has  a  vast  advantage  both  in 
gaining  its  starting-points  and  also  in  guarding  its  steps 
in  that  power  of  Introspection  that  is  possessed  by  every 
man,  woman,  and  child.  Everybody  buys  and  sells.  Almost 
everybody  watches  the  action  of  his  own  mind  enough  to  see 
what  are  the  motives  in  buying  and  selling.  Even  the  child 
knows  that  in  each  act  of  exchange  something  is  rendered 
and  something  is  received.  Everybody  within  the  pale  of 
compos  mentis  knows  that  it  takes  two  to  make  a  bargain, 
and  two  to  make  a  trade.  Each  party  to  a  trade  knows 
what  his  motive  is  in  making  it,  and  soon  comes  to  know 
that  the  other  party  has  a  corresponding  motive.  It  is  not 
needful  that  a  man  should  be  a  banker  or  merchant  or  even 
a  so-called  “business  man”  in  order  to  know  just  as  well 
as  an}d)ody  can  know  that  what  is  rendered  in  an  exchange 
is  thought  less  of  on  the  whole  than  what  is  received.  The 
slightest  introspection  tells  any  man  that.  As  this  must 


FIELD  OF  THE  SCIENCE. 


103 


always  be  true  of  each  of  the  parties  to  any  exchange,  that 
which  is  rendered  by  each  must  stand  in  a  different  relation 
to  his  own  mind  from  that  which  is  received  by  each.  In 
other  words,  each  is  glad  to  part  with  something  for  the  sake 
of  receiving  something  else ;  and  this  higher  estimate  put 
by  each  on  what  is  received  from  the  other  marks  for  each 
the  gain  of  the  exchange.  A  very  little  introspection  will 
inform  any  person,  that  were  this  higher  estimate  wanting 
in  the  mind  of  either  of  the  two  parties,  the  trade  would  not 
take  place  at  all.  It  is  perfectly  natural  to  trade  when  these 
conditions  are  present,  and  morally  impossible  to  trade  when 
they  arc  absent.  Hence  no  law  or  encouragement  is  needed  to 
induce  an}^  persons  to  trade  ;  trade  is  natural,  as  any  person 
can  see  who  stops  to  ask  himself  wh}7  he  has  made  a  given 
trade ;  and  on  the  other  hand,  any  law  or  artificial  obstacle 
that  hinders  two  persons  from  trading  who  would  otherwise 
trade,  not  only  interferes  with  a  sacred  right,  but  destroys 
an  inevitable  gain  that  would  otherwise  accrue  to  two  per¬ 
sons  alike.  Introspection,  accordingly,  breaks  up  some 
economical  fallacies.  “IIow  would  you  like  it  yourself  ?  ” 
is  often  a  relevant  question  to  inquirers  in  this  field.  An 
easy  self-knowledge  open  to  all  persons  alike  thus  gives 
sound  starting-points  and  guides  to  safe  steps  in  economics. 

( d )  The  Greek  language  has  a  distinct  form  of  expression 
for  that  class  of  suppositions  that  might  possibly  become 
facts,  and  thus  the  acute  mind  of  the  Greeks  marked  a 
decided  difference  between  such  suppositions  and  others 
impossible  to  become  facts.  This  distinction  must  always 
be  borne  in  mind  by  those  who  use  or  note  in  economical 
reasonings  the  expedient  of  Feigned  Cases.  These  are 
always  legitimate  and  often  pregnant  whenever  they  may 
be  realized  in  actual  fact ;  but  otherwise,  no  inference  at  all 
can  be  drawn  from  them,  because  it  is  a  universal  truth  in 
nature  and  in  logic,  ex  niliilo  niliil  jit,  out  of  nothing  nothing 
can  come.  But  a  supposition  that  may  clearly  be  realized 
in  fact  is  a  substantive  thing,  and  inferences  may  be  drawn 


104 


POLITICAL  ECONOMY. 


from  it,  just  as  geometrical  inferences  are  drawn  from  a  sup¬ 
posed  circle.  Let  us  take  an  illustration  from  Paris.  "While 
these  lines  are  being  written  the  Monetary  Conference  of 
1881  in  that  city  is  just  adjourned.  Able  and  eloquent  men 
represented  in  that  conference  the  United  States,  all  the 
nations  of  Europe,  and  even  the  distant  India ;  but  some  of 
these  representatives,  in  their  eagerness  for  a  factitious  ratio 
of  value  between  gold  and  silver,  forgot  the  important  dis¬ 
tinction  now  in  hand,  and  argued  of  the  good  results  to  flow 
from  the  realization  of  a  supposition,  which  itself  is  impossi¬ 
ble  to  become  a  fact.  The  French  and  American  delegates, 
through  Mr.  Evarts,  made  this  declaration  :  “  Any  ratio  now 
or  of  late  in  use  by  any  commercial  nation ,  if  adopted  by  an 
important  group  of  states ,  could  be  maintained;  but  the  adop¬ 
tion  of  a  ratio  of  15 J  of  silver  to  1  of  gold  icould  accomplish 
the  principal  object  with  less  disturbance  in  the  monetary  sys¬ 
tems  to  be  effected  by  it  than  any  other  ratio.’ ’  The  fallacy 
in  this  passage  is  in  the  words  “  could  be  maintained which 
are  a  supposition,  and  what  is  much  worse,  a  supposition 
contrary  to  fact,  from  which  all  arguing  is  nugatory.  Why 
it  is  contrary  to  fact  will  be  seen  at  length  in  our  chapter  on 
Money.  On  the  other  hand,  the  Monetary  Conference  of 
1867  in  Paris,  as  its  judgment  was  voiced  by  Mr.  Ruggles, 
argued  the  benefits  of  an  international  coinage  of  gold  with 
logical  propriety,  because,  while  that  was  then  a  mere  suppo¬ 
sition,  it  was  a  supposition  possible  any  day  to  become  a  fact. 
An  international  coinage  of  gold  is  a  simple  question  of  equal 
weights  in  the  coins  of  different  countries  :  an  equivalence  of 
values  between  gold  and  silver  coins  for  any  great  length 
of  time  is  neither  simple  nor  possible. 

(e)  This  last  point  leads  us  naturally  to  the  most  impor¬ 
tant  advantage  that  Economy  has  in  its  methods  of  reason¬ 
ing  over  the  other  moral  sciences,  namely  this,  that  the  result 
of  each  economical  process  may  be  stated  numerically  in  the 
terms  of  money,  while  mental,  ethical,  and  other  moral  pro¬ 
cesses  can  only  be  loosely  weighed  and  estimated.  This 


FIELD  OF  THE  SCIENCE. 


105 


single  fact,  to  say  nothing  of  other  connected  facts,  puts 
Economy  far  in  advance  of  the  other  moral  sciences  in  a 
scientific  point  of  view  :  it  has  an  ever  ready  test  which  they 
from  their  nature  never  can  have.  An  economical  blunder, 
whether  in  legislation  or  in  private  action,  pretty  soon  proves 
itself  to  be  such  by  the  lessened  gains  of  somebody,  and 
these  losses  can  be  stated  arithmetically ;  and  similarly,  an 
economical  improvement  evidences  itself  at  once  by  increased 
gains  coming  to  somebody  ;  while  it  may  take  years  and  years 
to  work  out  the  results  of  an  ethical  mistake,  and  even  then 
their  amount  can  only  be  guessed  at.  Theories  in  meta¬ 
physics  can  only  be  tested  by  the  reason  of  men,  and  rea¬ 
sonable  men  without  apparent  bias  of  motive  take  opposite 
views  of  sensations  and  intuitions  ;  while  theories  in  econom¬ 
ics,  which  can  be  even  better  tested  by  the  reason,  have  an 
additional  and  almost  immediate  and  constantly  recurring 
test  through  men’s  pockets  and  the  tables  of  the  census. 
The  truth  is,  that  all  these  matters  of  exchange  come  home 
intimately  to  each  man,  woman,  and  child ;  they  have  at 
hand  the  means  of  judging  and  comparing  the  effects  of 
good  and  bad  laws,  and  of  good  and  bad  practice  generally ; 
the  people  indeed  sometimes  deceive  themselves,  and  are  also 
too  often  duped  by  others,  in  these  matters  ;  but  it  is  none 
the  less  of  the  utmost  consequence  to  this  science  that  all  its 
results  work  themselves  at  last  into  a  definite  shape  —  into 
figures  that  cannot  lie  —  and  stand  out  like  landmarks  against 
the  sky.  It  is  not,  as  in  ethics  and  metaphysics,  that  ten¬ 
dencies  and  potencies  only  are  ascertained,  but  every  thing 
drifts  at  once  into  measurable  facts,  and  may  be  hardened 
into  statistics.  The  science  certainly  does  not  arise  out  of 
statistics,  and  is  not  strictly  dependent  on  them,  though  it 
uses  them  and  rejoices  in  them  as  a  help.  So  far  as  this,  all 
economical  authorities  are  agreed.  But  when  Jevons  con¬ 
cludes  from  the  conceded  circumstance  that  every  thing 
whatsoever  economically  exchanged  has  a  standard  of  meas¬ 
urement  in  money,  that  economics  may  therefore  become  a 


106 


POLITICAL  ECONOMY. 


strictly  mathematical  science,  “  a  calculus  of  pleasure  and 
pain  ;  ”  and  when  Macleod  from  the  same  circumstance  calls 
all  exchangeable  things  technically  “  quantities,”  and  applies 
mathematical  formulas  to  them,  and  concludes  accordingly 
that  Economy  is  a  “  physical,”  as  well  as  moral,  science, 
or  as  he  calls  it,  “a  great  moral  science  both  inductive  and 
deductive  framed  on  the  strictest  model  of  a  physical  sci¬ 
ence  ;  ”  there  are  those,  and  the  present  writer  is  among 
them,  who  are  disposed  to  cry  a  halt.  We  saw  in  the  last 
paragraph  that  a  question  of  weights  is  a  very  different  thing 
from  a  question  of  values ,  because  the  thoughts  and  feelings 
and  will  of  men  cannot  affect  the  former  at  all,  while  they 
entirely  create  the  latter.  If  the  distinction  already  made 
between  a  physical  and  moral  science  be  well  taken,  as  it  is, 
then  Economy  cannot  belong  to  both  ;  it  is  either  a  science  of 
Persons  or  a  science  of  Things,  as  those  terms  are  commonly 
contrasted,  and  it  makes  confusion  to  mix  the  two  ;  besides, 
there  is  no  gain  to  come  from  it,  so  far  as  we  can  see,  but 
obviously  some  loss,  because  many  persons  can  master  eco¬ 
nomics  thoroughly  who  find  it  difficult  to  master  mathematical 
formulas  at  all ;  and  it  seems  a  violence  to  the  term  “  quan¬ 
tity  ”  to  include  under  it  a  mere  service  sold,  as  for  example 
the  service  of  Dr.  Bliss  in  medically  attending  upon  the  wound 
of  President  Garfield.  It  is  true,  that  personal  services  and 
all  other  valuable  things  are  either  sold  against  money,  or  may 
be  measured  in  the  terms  of  it,  and  this  is  no  small  aid  to  the 
science,  as  we  have  seen,  but  it  does  not  seem  as  if  this  were 
enough  to  make  the  science  one  of  u  quantities,”  or  to  open 
it  up  for  the  display  of  a  mathematical  “  calculus.”  Jevons 
and  Macleod  are  both  excellent  economists,  and  no  ultimate 
harm  can  come  to  the  science  from  their  attempts  to  render 
it  “  exact ;  ”  but  we  venture  to  assure  our  readers  that  the}T 
can  explore,  if  they  will,  all  the  recesses  of  the  temple  of 
Economics  without  going  through  the  portico  of  Analytics.1 

1  See  Jevons’s  Theory  of  Political  Economy,  particularly  chap  i.,  and  Macleod’s 
Elements  of  Economics,  yoh  i.  chap.  ii.  (edition  1S81). 


FIELD  OF  THE  SCIENCE. 


107 


3.  In  tlie  third  place,  while  Political  EconoimT  is  strictly 
and  only  a  moral  science  as  distinguished  from  a  physical 
science,  that  is  to  say,  has  to  do  with  the  laws  of  action 
belonging  to  persons  and  not  those  belonging  to  things,  still, 
there  is  another  current  sense  of  the  word  “moral,”  in 
which  Political  Economy  is  not  a  moral  science  at  all ;  and 
that  is  the  sense  in  which  the  word  is  used  as  synonymous 
with  “ethical,”  or  “obligatory.”  Paley  defines  Ethics  as 
“  the  science  of  Duty  and  tlie  reasons  for  it  ;  ”  and  it  is  in 
this  ethical  sense  that  we  sometimes  speak  of  the  science 
of  Morals,  or  of  Moral  Science.  Now,  the  idea  of  obliga¬ 
tion ,  on  which  ethical  science  is  founded,  and  the  idea  of 
value ,  on  which  the  science  of  economy  is  founded,  are 
totally  distinct  ideas.  Both  are  “moral”  sciences  in  the 
proper  sense  of  that  term  as  opposed  to  “physical”  sci¬ 
ences,  though  it  is  important  to  see  clearly  the  vital  distinc¬ 
tion  between  the  two.  There  is  one  word  that  marks  and 
circumscribes  the  field  of  Ethics,  and  that  word  is  Ought: 
there  is  one  word  also  that  marks  and  circumscribes  the  field 
of  Economics,  and  that  word  is  Value.  The  imperatives 
of  ethical  obligation  rest  upon  the  consciences  of  men,  and 
Duty  is  to  be  done  at  all  hazards :  guilt  is  incurred  if  it  be 
neglected  :  pecuniary  gains  and  losses,  however  large,  do  not, 
or  at  least  ought  not,  weigh  a  feather  as  against  an  intuition 
of  Right.  Economy,  on  the  other  hand,  does  not  aspire  to 
place  its  feet  upon  this  high  ground  :  it  finds  a  solid  and  ade¬ 
quate  though  not  a  lofty  footing  upon  the. expedient  and  the 
useful :  no  man  is  ever  under  any  obligation  to  make  a  trade  : 
he  properly  makes  it  or  not  according  to  his  present  sense 
of  its  gainfulness  to  himself.  Ethical  science  appeals  only 
to  an  enlightened  conscience,  and  certain  conduct  is  ap¬ 
proved  because  it  is  right,  and  for  no  other  reason :  econom¬ 
ical  science  appeals  only  to  an  enlightened  self-interest,  and 
exchanges  are  made  because  they  are  mutually  advanta¬ 
geous,  and  for  no  other  reason :  each  of  the  two  sciences, 
therefore,  has  a  basis  and  sphere  of  its  owrn,  and  the  grounds 


108 


POLITICAL  ECONOMY. 


of  the  two  are  not  only  independent  but  also  incommensura 
ble.  Economy  does  and  must  discuss  and  decide  all  ques¬ 
tions  on  economical  grounds  alone,  and  as  a  science  has  no 
direct  concern  with  questions  of  ethical  right.  It  favors 
honesty  and  morality  indeed  because  these  facilitate  ex¬ 
changes.  It  puts  the  seal  of  the  market  upon  all  of  the 
virtues.  It  condemns  slavery,  not  so  much  because  it  is 
ethically  wrong,  as  because  it  is  economically  ruinous.  Still, 
after  all,  each  science  has  some  points  of  contact  with  other 
sciences,  and  this  is  particularly  true  of  ethics  and  econom¬ 
ics,  and  may  be  the  reason  wliy  the  two  have  sometimes 
been  confounded  with  each  other.  The  system  of  the  uni¬ 
verse  appears  to  be  one  ;  and,  at  any  rate,  the  sound  con¬ 
clusions  of  economics  seem  to  be  harmonious  with  the  sound 
conclusions  of  ethics,  since  both  certainly  work  for  the 
good  of  men,  —  for  the  amelioration  of  their  condition. 
The  spheres  of  the  two,  though  entirely  distinct,  neverthe¬ 
less  touch  each  other.  Duty  and  interest  lie  alongside. 
The  ultimate  analysis  of  Property,  for  example,  will,  as  we 
may  see  hereafter,  lead  the  inquirer  into  the  higher  region 
of  ethical  truth.  In  legislation  also,  the  question  is  fre¬ 
quently  at  the  same  time  an  ethical  and  an  economical  one, 
which  led  Wayland  acutely  to  observe  that  “  almost  every 
question  of  the  one  science  may  be  argued  on  grounds 
belonging  to  the  other.” 

4.  In  the  fourth  place,  our  science,  as  the  adjective 
“  political  ”  clearly  implies,  relates  to  men  in  a  state  of 
Society ,  and  not  to  men  in  a  state  of  isolation.  It  is  a  social 
as  well  as  a  moral  science.  The  hermit  who  neither  buys 
nor  sells,  who  neither  gives  nor  receives  any  thing  in  ex¬ 
change,  is  in  no  sense  amenable  to  the  laws  of  Political 
Economy.  Robinson  Crusoe,  for  instance,  came  to  lead 
a  very  tolerable  life  upon  his  desolate  island  by  means  of 
his  own  industry  directed  so  as  to  satisfy  his  own  wants 
by  his  own  efforts.  lie  did  every  tiling  for  himself,  and  had 
no  opportunity  to  buy  any  thing,  sell  any  thing,  exchange 


FIELD  OF  THE  SCIENCE. 


109 


any  thing.  The  whole  course  of  such  an  isolated  life  could 
never  develop  the  idea  of  Value,  and  the  record  of  the  whole 
experience  of  such  a  solitary  individual  would  require  no 
such  word  as  Value.  Moreover,  all  men,  even  in  the  most 
advanced  states  of  society,  still  satisfy  some  of  their  own 
wants  by  their  own  efforts  without  exchange,  and  just  so  far 
as  they  do  this,  they  stand  outside  the  pale  of  economics. 
When  a  man  shaves  his  own  face,  our  science  has  nothing 
to  say :  when  the  barber  shaves  him  for  a  fee,  it  has  a  good 
deal  to  say.  If  men  had  been  so  made,  and  the  world 
around  them  had  been  so  made,  that  each  man  could  as  well 
meet  his  varied  wants  by  his  own  direct  efforts  as  by  the 
intervention  of  mutual  exchange,  then  each  would  certainly 
have  grown  his  own  food,  made  his  own  clothes,  hammered 
out  his  own  tools,  been  his  own  doctor,  and  so  on  through 
the  list  of  his  wrants  ;  and  under  those  circumstances  the 
notion  of  Value  would  have  had  neither  birth  nor  being,  and 
of  course  such  a  thing  as  a  science  of  Value  could  have  had 
no  possible  existence. 

But  it  is  evident  at  the  very  first  glance  that  neither  men 
nor  the  world  have  been  so  made.  Society  is  God’s  handi¬ 
work.  It  is  the  most  complicated  and  the  most  wonderful, 
as  it  was  the  final,  work  of  His  hands.  'The  first  man,  as  he 
stood  alone  in  the  earthly  Paradise,  was  indeed  a  wonderful 
structure,  —  wonderful  in  his  body,  and  in  all  his  mental 
and  spiritual  powers.  But  it  was  not  good  that  the  man 
should  be  alone.  Society  must  be  provided  for ;  and  m 
providing  for  a  society  of  human  beings,  the}^  were  made 
very  dependent  upon  each  other  for  existence,  for  happi¬ 
ness,  and  for  melioration.  The  entire  organization  of  soci¬ 
ety,  in  its  lower  and  in  its  higher  parts,  in  the  phenomena 
of  exchange  and  in  the  phenomena  of  ethics,  displays  those 
peculiar  laws  that  mark  a  divine  hand ;  and  no  intelligent 
observer  can  watch  their  working,  when  left  intact  and  free, 
without  being  stimulated  and  gladdened  by  the  beneficent 
results  to  which  they  lead.  If  the  footsteps  of  providential 


110 


POLITICAL  ECONOMY. 


intelligence  and  goodness  be  found  anywhere  upon  this 
earth,  they  are  discernible  in  the  fundamental  laws  of  Soci¬ 
ety. 

So  far,  too,  as  economics  are  concerned,  there  is  a  wonder¬ 
ful  correspondence  between  the  structure  of  society  and  the 
structure  of  the  physical  earth.  Both  work  together  to  keep 
men  in  a  state  of  mutual  dependence,  and  on  a  plane  of 
rising  comforts.  The  limitations  which  men  find  in  them- 
selves,  and  which  bind  them  into  a  societ}7,  correspond  in 
their  effects  with  the  obstacles  in  the  way  of  the  satisfaction 
of  men’s  desires  found  on  and  under  the  surface  of  the 
earth.  The  almost  incredible  increase  of  men’s  powers  and 
enjoyments  through  their  combination  in  one  place,  and 
co-operation  in  distant  places,  will  be  the  burden  of  a  later 
page ;  but  it  is  proper  in  this  paragraph  on  the  social  char¬ 
acter  of  our  science  to  call  attention  to  the  natural  obstacles 
interposed  between  the  isolated  man  and  the  supply  of  his 
various  wants.  If  any  one  man  tries  to  surmount  a  consid¬ 
erable  number  of  these  natural  obstacles,  he  must  miserably 
fail,  because  his  powers  are  not  adequate  to  the  task ;  and 
hence  it  follows,  that  in  a  state  of  isolation  men's  wants 
exceed  their  powers ;  but  let  the  same  man  devote  himself  to 
overcome  but  one  class  of  obstacles,  for  instance,  those  in 
the  way  of  procuring  suitable  clothing,  and  his  powers  are 
adequate  to  this,  he  soon  acquires  skill  in  it,  he  learns  to 
avail  himself  of  the  free  help  of  nature  and  the  facilitat¬ 
ing  processes  of  art,  he  is  able  to  realize  large  products 
along  his  line,  and  is  now  ready  to  offer  his  surplus  in  ex¬ 
change  with  other  men,  who  meanwhile  have  been  giving 
themselves  each  to  another  class  of  obstacles,  have  concen¬ 
trated  efforts  and  skill  upon  them,  have  succeeded  by  the 
help  of  nature  and  art  in  surmounting  them,  and  are  now 
ready  to  offer  their  surplus  products  to  society  in  exchange ; 
and,  the  exchanges  being  made  in  all  directions,  men  always 
find  that  they  thus  obtain  vastly  greater  satisfactions  for 
their  various  desires  than  they  could  possibly  get  by  direct 


FIELD  OF  '/HE  SCIENCE. 


Ill 


effort;  so  that  we  may  even  say,  that,  in  a  state  of  society, 
men’s  powers  tend  to  overtake  their  ivants.  Under  the  social 
system  of  exchange,  a  division  of  employments  becomes 
possible,  all  peculiar  talents  find  scope,  industry  becomes 
steady,  obstacles  gradually  give  way  in  all  directions,  moun¬ 
tains  are  pierced,  rivers  are  bridged,  forests  are  levelled, 
fields  are  made  fertile,  mines  are  opened,  and  oceans  are 
crossed  ;  a  vast  increase  of  useful  products  comes  into  exist¬ 
ence,  and  each  part  of  the  earth  ministers  to  the  wants 
of  every  other  part ;  as  measured  by  effort,  every  thing  comes 
easier  to  everybody,  as  measured  by  quality  all  products 
become  better,  and  as  measured  b}r  quantitj"  there  are  more 
articles  and  in  greater  variety ;  and  it  follows,  of  course, 
that  there  are  more  satisfactions  of  all  men’s  desires. 
Political  Economy,  therefore,  WThich  unfolds  the  reasons  and 
the  laws  of  exchange,  finds  its  only  field  in  a  state  of  Soci¬ 
ety. 

There  is  another  reason  why  Political  Economy  is  a  social 
science  :  it  touches  at  certain  points  on  the  action  of  Govern¬ 
ment.  For  example,  the  minting  of  the  current  coin,  wdiich 
is  so  indispensable  to  the  ongoing  of  exchanges,  has  always 
been  considered  as  a  function  of  the  Government.  “Whose 
is  this  image  and  superscription?”  asked  our  Lord.  The 
answer  came  then,  as  it  would  come  now  in  substance  the 
world  over,  “Caesar’s.”  It  would  seem  as  if  the  govern¬ 
ment  stamp  authenticates  the  weight  and  fineness  of  the  coin 
better  than  any  other  known  expedient  can  do  it ;  and,  if  so, 
our  science  must  acknowledge  a  direct  obligation  to  society 
through  such  action  of  its  government.  The  whole  matter 
of  taxation,  also  which  is  certainly  an  economical  topic,  is 
closely  connected  with  questions  of  government ;  and  the 
form  and  amount  of  taxation  depend  at  last  on  the  action 
of  government,  though  the  views  of  the  economists  have 
already  been  influential  in  determining  these.  The  laws  of 
property,  of  sale,  and  of  bequest,  all  of  which  are  of  supreme 
importance  in  an  economical  point  of  view,  hinge  also  on 


112 


POLITICAL  ECONOMY. 


governmental  action.  All  this  shows  that  our  science 
touches  at  several  vital  points  on  the  far  more  comprehen¬ 
sive  science  of  government,  and  marks  the  fact,  that,  as 
no  individual  can  be  completely  isolated  from  society,  so  no 
science  can  be  completely  isolated  from  the  rest  of  the  family 
of  sciences.  More  or  less  each  touches  and  inlluences  the 
rest.  Still ,  we  shall  find  it  to  be  a  dictate  of  sound  reason 
as  well  as  a  sharp  lesson  from  experience,  that  the  less 
government  has  to  do  in  matters  purely  economical,  the 
better.  The  points  of  contact  we  concede  ;  the  asserted 
jurisdiction  and  control  we  deny.  Self-interest,  which  is 
the  motive  power  in  exchange,  while  at  a  few  points  it 
accepts  the  help,  will  not  at  other  points  tolerate  the  inter¬ 
ference,  of  government. 

5.  In  determining  now  the  exact  field  of  our  science,  it 
only  remains  in  the  fifth  place,  to  throw  out  all  those  defini¬ 
tions  that  give  it  too  broad  a  range,  and  to  propose  an  exact 
and  final  definition.  For  example,  Say  defines  it  “  as  the 
science  of  Society ;  a  science  combining  the  results  of  our 
observations  on  the  nature  and  functions  of  the  different  parts 
of  the  social  body.”  This  is  far  too  broad.  Society  is  a  vast 
organization,  and  there  is  no  one  science  that  can  embrace  it 
all.  Government,  Ethics,  and  Economics,  all  have  a  place 
within  this  great  sphere.  So,  too,  Sismondi  regards  u  as  the 
object  of  Political  Economy  the  physical  welfare  of  man ,  so 
far  as  it  can  be  the  work  of  government .”  But  this  is  too 
broad,  too  narrow,  and  too  confusing,  all  at  the  same  time. 
Several  other  things  besides  economics  and  government  con¬ 
tribute  to  “  the  physical  welfare  of  man  ;  ”  then  economics 
contribute  to  other  parts  of  man’s  nature  besides  his  u  phy¬ 
sical  nature;  and  also  the  uniting  of  “government”  and 
‘  ‘  political  economy  ’  ’  in  this  intimate  way  precludes  a  clear 
general  conception  of  the  latter.  On  the  other  hand,  we 
place  the  field  of  the  science  just  where  Whately  places  it,  — • 
“  catallactics ,  or  the  science  of  exchanges just  where  the 
continental  Kiehl  puts  it,  —  “  Die  Lehre  von  den  Werthen 


FIELD  OF  THE  SCIENCE. 


113 


The  doctrine  of  Values ;  and  just  where  Macleod  locates  it, 
though  we  do  uot  like  the  term  “  quantities  ”  in  this  connec¬ 
tion,  —  u  the  science  which  treats  of  the  laws  vdiich  govern  the 
relations  of  exchangeable  quantities .”  Any  one  of  the  three 
following  definitions,  which  are  the  precise  equivalents  of  each 
other,  namely,  the  science  of  Sales ,  the  science  of  Exchanges , 
the  science  of  Value ,  gives  a  perfectly  definite  field  to  Political 
Economy.  We  shall  use  the  three  interchangeably,  though 
for  the  present  emphasizing  the  last.  To  determine  with 
the  utmost  distinctness  wdiat  Value  is,  to  separate  it  from 
some  things  which  have  often  been  confounded  with  it,  and 
thus  to  lay  a  foundation  for  the  science  at  once  solid  and 
complete,  will  be  the  work  of  the  next  chapter. 

But  as  we  have  already  noted  in  the  persistent  use  of  the 
indefinite  word  “  wealth”  the  first  great  reason  of  the  slow 
advance  hitherto  made  in  this  field  of  inquiry,  it  is  in  order 
at  this  point  to  call  attention  also  to  the  second  great  reason 
of  this  tardy  progress.  This  is  found  in  the  peculiar  (though 
not  indefinite)  meaning  of  the  word  “  Value  ”  and  its  equiv¬ 
alent  terms.  Value  is  a  relative  word,  and  so  is  Sales,  and 
so  is  Exchanges.  The  difficult}7,  however,  does  not  lie  in  the 
words  as  such,  but  in  the  very  subject-matter  of  the  science. 
Sales  imply  both  a  seller  and  a  buyer ;  exchanges  imply  two 
things  given  one  for  the  other ;  and  value  may  be  briefly 
defined  as  purchasing-power,  that  is  to  say,  the  value  of  any 
thing  is  its  power  of  purchasing  other  things.  Value  is  not 
an  independent  quality  of  one  thing,  as  height  is  a  quality 
of  a  tiee,  and  hardness  a  quality  of  a  stone,  but  it  is  a  quality 
of  one  thing  as  estimated  in  a  corresponding  quality  of  some¬ 
thing  else.  It  is  not  a  quality  of  gold  as  gold,  but  a  relation 
of  purchase  which  that  gold  holds  to  certain  other  things 
which  it  will  buy.  The  notion  of  Value  is  not  conceivable 
except  by  a  comparison  of  two  things,  and  what  is  more,  of 
two  things  mutually  exchanged.  Political  Economy  accord¬ 
ingly  is  bottom-based  upon  a  relative  idea,  and  has  to  do 
from  beginning  to  end  with  a  relation  of  mutual  purchase 


114 


POLITICAL  ECONOMY. 


established  between  two  things.  Now'  in  this  there  is  an 
inherent  difficulty,  which  proves  to  be  greater  to  some  minds 
than  to  others,  and  one  which  can  never  be  obviated  to 
beginners,  nor  be  wholly  obviated  to  anybody  except  by 
constant  familiarity  with  it.  It  lies  in  the  very  nature  of  the 
subject.  Men  much  more  readily  apprehend  an  absolute  idea 
than  a  relative  one.  They  much  more  easily  follow  a  dis¬ 
cussion  touching  the  independent  attributes  of  single  objects, 
such  as  length,  breadth,  thickness,  and  many  others,  than  a 
discussion  touching  Value,  which  is  not  an  attribute  of  any 
one  thing,  but  a  relation  subsisting  between  two  things. 
This  is  the  prime  difficulty  in  this  class  of  inquiries,  and 
has  been  a  main  reason  of  the  slow  progress  made  in  them. 
Economical  writers  have  not  called  attention  as  they  should 
to  this  difficulty  at  the  outset,  nor  have  they  themselves 
wholly  escaped  the  snares  that  lurk  around  it. 

In  thus  circumscribing  the  field  of  Political  Economy,  and 
yielding  ground  that  has  been  sometimes  claimed  as  falling 
within  it,  wre  all  the  more  assert  complete  jurisdiction  over 
the  territory  as  thus  defined.  No  other  possible  science  can 
have  any  thing  to  do  with  the  gaining  of  property  by  means 
of  exchanges.  Theft  is  out  of  the  question  here.  So  are 
gifts.  It  makes  no  difference  w'liat  a  man’s  motives  may  be 
in  buying  and  selling,  it  makes  no  difference  what  his  ulti¬ 
mate  purposes  may  be  as  to  the  results  of  his  buying  and 
selling,  the  buying  and  selling  must  proceed  in  accordance 
with  the  principles  of  this  science.  Saint  and  sinner  must 
plough  with  the  same  heifer.  The  laws  of  value  are  abso¬ 
lutely  universal.  One  man  may  get  rich  for  the  sake  of 
making  a  display,  and  another  man  may  get  rich  for  the 
sake  of  doing  good,  but  the  getting  rich  is  one  and  the  same 
process  forever.  As  John  Bascom  well  says,  —  “Which¬ 
ever  one  of  a  thousand  motives  engages  man  in  the  pursuit 
of  wealth,  once  in  that  pursuit,  these  all  conform  to  one 
method,  and  acknowledge  one  law.”  Ethics  constitute  a 
great  sphere,  and  persons  are  in  it  for  certain  great  pur- 


FIELD  OF  THE  SCIENCE. 


115 


poses ;  the  same  persons  are  also  in  the  sphere  of  economics 
for  other  great  purposes  ;  the  two  spheres  are  co-ordinate 
with  each  other,  not  one  in  subordination  to  the  other ; 
economics  have  to  do  with  persons  just  as  directly  and  con¬ 
stantly  as  ethics  have  to  do  with  them ;  and  the  golden  rule 
is  equally  applicable  to  persons  acting  in  either  sphere.  The 
value  of  material  things,  the  value  of  human  efforts,  and  the 
value  of  incorporeal  rights,  —  in  short,  every  value  is  deter¬ 
mined  only  by  two  persons,  acting  face  to  face  in  direct 
reference  to  each  other  as  persons.  Whatever  others  have 
done,  therefore,  or  may  hereafter  undertake  to  do,  we  pro¬ 
pose  solely  to  investigate  the  motives  and  the  conditions  that 
govern  men  in  their  exchanges.  Such  investigations  have  a 
definite  field  of  view ;  and  if  properly  pursued,  will  lead  to 
a  statement  of  those  laws  that  constitute  the  Science  of 
Value.  To  these,  then,  we  next  proceed ;  and  first  of  all, 
to  an  anatysis  of  Value  itself. 

We  may  summarize  the  principal  propositions  of  this 
chapter  as  follows  :  — 

1.  It  is  the  first  grand  condition  of  a  science  that  there  he  a 
circumscribed  class  of  facts  to  start  with. 

2.  The  second  condition  is ,  that  these  facts  he  open  to  the 
processes  of  Induction ,  Deduction ,  or  both  of  them. 

3.  Clearness  of  insight  and  conviction  is  a  part  of  the  proof 
of  a  correctly  made  generalization. 

4.  There  are  three  great  classes  of  sciences ,  namely ,  the 
Exact ,  the  Physical ,  and  the  Moral. 

5.  Economy  is  a  Moral  Science ,  and  possesses  all  the  con¬ 
ditions  of  a  scientific  growth. 

6.  Induction ,  Deduction ,  Introspection ,  Feigned  Cases , 
and  Results  Measurable  in  numbers ,  are  the  tools  with  which 
economists  work. 

7.  Economics  are  not  to  be  confounded  with  Ethics ,  though 
their  spheres  lie  alongside. 

8.  Associated  and  not  isolated  men  afford  a  chance  for  eco¬ 
nomical  workings. 


116 


POLITICAL  ECONOMY. 


9.  The  structure  of  the  physical  earth  is  in  harmony  with 
the  varied  and  social  wants  of  men. 

10.  Political  Economy  is  the  Science  of  Value ,  which  is  a 
definite  relation  between  two  things,  though  one  somewhat 
hard  to  be  caught  and  held. 


VALUE . 


117 


CHAPTER  III. 

VALUE 

The  preceding  chapter  has  paved  the  way  for  this  one. 
The  field  of  the  science  is  the  field  of  Value  ;  and  we  have 
gained  some  little  glimpse  of  that  seemingly  elusive  thing, 
with  which  we  shall  be  concerned  from  now  on  to  the  end. 
Though  Value  seem  at  first  sight  to  be  elusive,  its  shape 
becomes  definite  enough  when  firmly  grasped,  and  it  daily 
proves  itself  to  be  one  of  the  most  tremendous  realities  with 
which  human  life  is  confronted.  The  daily  bread,  the  scale 
of  comforts,  the  mental  and  moral  progress,  of  every  man 
and  woman  and  child  in  the  civilized  world,  hang  almost 
wholly  upon  it.  The  mind  is  baffled  by  the  bigness  of  the 
figures  that  express  the  aggregate  of  values  in  any  one  de¬ 
partment  of  industry  even  in  a  single  country.  The  grain 
crops  alone  of  the  United  States  in  the  decade  1870-80  were 
valued  at  $10,000,000,000,  of  which  corn  was  one-half,  and 
wheat  $3,500,000,000.  To  take  a  specific  and  local  example 
of  increase  in  a  valuable  product,  —  the  little  town  of  Min¬ 
neapolis  in  Minnesota,  from  a  flour  product  of  30,000  barrels 
in  1860,  rose  in  1880  to  2,051,841  barrels.  Now  Value,  in 
the  definite  and  uniform  sense  in  which  it  is  used  in  econom¬ 
ics,  is  always  an  expressed  result;  and  the  entire  processes 
that  lead  up  to  this  result  are  called  Production,  which  will 
be  the  subject  of  the  next  chapter.  Before  we  proceed  to 
the  elementary  exposition  of  Value  that  follows,  it  should  be 
said  in  the  way  of  caution,  that  the  word  is  sometimes  used 
in  loose  and  unscientific  senses,  which  we  are  carefully  to 
avoid.  For  instance,  men  speak  of  the  “  value  ”  of  a  good 


118 


POLITICAL  ECONOMY. 


example,  in  which  sense  it  is  equivalent  to  utility ;  and  gram¬ 
marians  speak  of  the  “  value  ”  of  a  word  or  phrase,  in  which 
sense  it  means  import  or  signification.  Scientifically  speak¬ 
ing,  Value  never  comes  into  being  until  it  is  determined  by 
an  actual  exchange  ;  and  never  resides,  as  utility  may,  in 
any  one  thing  in  and  of  itself ;  still,  no  ambiguity  or  other 
ill  consequence  will  arise,  if,  for  the  sake  of  shortened  forms 
of  expression,  we  sometimes  use  the  word  as  if  it  meant 
expected  or  estimated  value,  or  even  use  such  an  expression 
as  this  —  Land  has  Value.  Examples  of  this  harmless  but 
needful  departure  from  a  finical  exactitude  of  science  will 
come  up  as  we  go  on. 

If  I  take  up  a  new  lead-pencil  from  my  table,  for  the  pur¬ 
pose  of  examining  all  its  qualities,  I  shall  immediately  per¬ 
ceive  those  which  are  visible  and  tangible.  The  pencil  has 
length,  a  cylindrical  form,  a  black  color,  is  hard  to  the 
touch,  is  composed  of  wood  and  plumbago  in  certain  rela¬ 
tions  to  each  other,  and  has  the  quality,  when  sharpened  at 
the  end,  of  making  black  marks  upon  white  paper.  These 
qualities,  and  such  as  these,  may  be  learned  by  a  study  of 
the  pencil  itself.  But  can  I  learn,  by  a  study  of  the  pencil 
itself,  the  value  of  the  pencil  ?  Is  value  a  quality  ?  By  any 
examination  of  its  mechanical,  or  by  any  analysis  of  its 
chemical  properties,  can  I  detect  how  much  the  pencil  is 
worth  f  No.  The  questioning  of  the  senses,  however  mi¬ 
nute,  the  test  of  the  laboratory,  however  delicate,  applied 
to  the  pencil  alone,  can  never  determine  how  much  it  is 
worth.  These  methods  will  discover  the  qualities  that  be¬ 
long  to  the  pencil  as  such,  but  I  must  take  another  method 
altogether  to  determine  its  value. 

Will  the  origin  of  the  word  Value  help  in  finding  a  method 
by  which  I  may  discover  the  value  of  the  pencil?  The 
word  is  derived  from  the  Latin  verb  valere,  to  pass  for ,  to 
be  worth.  There  is  a  hint  of  a  comparison  in  the  original 
meaning  of  the  term  itself.  Will  the  current  use  of  language 
assist  me  any  further  in  finding  out  the  way  to  learn  the 


VALUE. 


119 


value  of  my  pencil?  In  current  language,  when  the  value 
of  any  thing  is  asked,  the  answer  always  comes  in  the  terms 
of  something  else.  We  ask,  IIow  much  is  it  worth?  The 
answer  is,  So  many  cents  or  dollars.  The  cents  or  dollars 
are  very  different  things  from  the  things  whose  value  we  in¬ 
quire  after ;  and  thus  we  see  again  more  clearly  that  value 
implies  a  comparison  of  two  distinct  things ;  and,  if  so,  of 
course  it  is  useless  to  try  to  ascertain  its  value  by  a  study 
of  the  pencil  alone.  But  what  kind  of  a  comparison  between 
two  things  is  needful,  in  order  to  ascertain  the  value  of 
either?  There  is  no  use  in  laying  down  a  certain  number 
of  cents  by  the  side  of  the  pencil  for  the  purpose  of  lixing 
its  value,  as  we  lay  down  a  carpenter’s  square  by  the  side 
of  a  stick  to  ascertain  its  length ;  because  the  cents  have 
no  common  physical  quality  with  the  pencil,  as  the  square 
and  stick  have  in  common  the  physical  quality  of  length. 
A  simple  comparison  determines  the  relative  length  of  the 
square  and  the  stick,  and  it  makes  no  difference  in  the  result 
whose  the  square  is,  or  whose  the  stick  is.  A  borrowed 
square  is  just  as  good  to  determine  length  as  any  other,  since 
that  circumstance  does  not  affect  the  terms  of  the  compari¬ 
son  :  also,  one  man  is  competent  to  make  the  comparison, 
and  it  is  not  needful  that  he  be  the  owner  of  either  of  the 
things  compared. 

But  is  a  man  who  does  not  own  a  thing  competent  to  fix 
its  value  ?  And  is  a  man  who  does  own  a  thing  competent 
to  fix  its  value  by  himself  alone?  The  true  answer  to  these 
questions  brings  out  two  peculiarities  of  that  comparison  by 
which  value  must  always  be  ascertained.  Besides  the  two 
things  compared,  there  must  be  always  two  persons  com¬ 
paring,  and  each  of  these  two  persons  must  be  virtually  the 
owner  of  one  of  the  things  compared.  Because  I  think  my 
pencil  is  worth  fifteen  cents,. is  it  therefore  worth  fifteen 
cents  ?  Somebody  else  must  think  so  too  before  that  fact  can 
be  announced.  Also,  the  comparison  that  two  thieves  make 
between  two  pieces  of  stolen  goods  would  not  go  far  in  pub- 


120 


POLITICAL  ECONOMY. 


lie  estimation  towards  fixing  the  value  of  either  piece  of 
goods.  Somebody,  then,  who  owns  the  cents,  must  make  a 
comparison  with  somebody  else  who  owns  the  pencil,  or  the 
value  of  the  latter  is  not  likely  to  be  truly  ascertained. 

But  besides  such  a  comparison,  essential  as  this  is  as 
towards  the  end  in  view,  another  step  is  needful  before  I  can 
announce  the  value  of  the  pencil.  Not  simply  a  comparison 
but  an  action  also  is  necessary.  I  think  it  is  worth  fifteen 
cents ;  an  owner  of  cents,  with  whom  the  comparison  is 
made,  thinks  so  too;  is  it  therefore  worth  fifteen  cents? 
That  is  more  than  I  can  tell  yet.  I  say  to  him,  Will  you 
take  it  and  give  me  fifteen  cents  for  it?  He  replies,  I  think 
it  is  worth  it,  but  I  am  not  ready  to  give  that  sum  for  it 
this  morning.  The  value  of  the  pencil  is  not  yet  deter¬ 
mined.  In  order  to  that,  there  must  be  an  actual  exchange 
of  the  pencil  for  the  cents.  There  must  be  two  things,  two 
persons,  a  comparison,  an  actual  exchange  by  which  each 
person  shall  receive  in  fact  or  in  ownership  that  previously 
held  by  the  other,  —  each  rendering  something  for  the  sake 
of  the  thing  received,  before  the  determinate  value  of  any 
thing  is  possible  to  be  stated.  There  may  be  expected 
value,  estimated  value,  but  actual  value  there  is  none,  until 
a  real  exchange  has  settled  how  much  the  value  is.  The 
value  of  any  thing  is  something  else  already  exchanged  for  it. 
Value  is  not  simply  a  relation  subsisting  between  two  things, 
but  an  actual  fact  established  in  connection  with  those  two 
things.  Quid  pro  quo  is  the  universal  formula  of  value. 
The  pencil  is  not  worth  fifteen  cents,  because  I  have  not  yet 
succeeded  in  obtaining  that  sum  in  exchange  for  it. 

Not  dealing  in  pencils,  nor  liking  to  chaffer,  and  finding 
it  a  little  troublesome  to  discover  what  the  value  of  the 
pencil  is,  I  ask  myself  what  its  value  was  when  I  purchased 
it?  That  is  an  easy  question.  Two  days  ago  I  paid  for  it 
the  sum  of  ten  cents,  United  States  money.  It  was  the 
storekeeper  and  I.  I  owned  the  cents,  and  he  owned  the 
pencil.  We  compared  these  two  pieces  of  property  together, 


VALUE. 


121 


and  agreed  to  change  ownership  in  them.  I  gave  him  the 
cents  for  the  sake  of  the  pencil,  and  he  gave  me  the  pencil 
for  the  sake  of  the  cents.  How  much  is  my  pencil  worth? 
I  do  not  know.  How  much  was  it  worth  two  days  ago? 
Ten  cents  exactly. 

If  this  preliminary  view  be  just,  it  is  clear  that  value  is 
not  in  any  true  sense  a  quality  residing  in  an}'  one  thing, 
but  is  a  relation  of  mutual  purchase  established  between 
two  things.  Nevertheless,  it  is  often  convenient  to  regard 
value  as  a  quality  inhering  in  a  commodity  or  service.  The 
convenience  of  such  expressions  as  “the  pencil  has  value,’ 9 
“gold  has  value,”  is  so  great,  that  science  will  not  consent 
to  forego  the  advantage  of  using  them,  even  though  they 
are  not  scientifically  accurate.  Science  justly  prefers  to 
make  her  language  intelligible  and  popular,  even  at  the 
hazard  of  perpetuating  a  misapprehension.  On  such  sub¬ 
jects  as  these,  she  is  compelled  in  part  to  use  language 
as  she  finds  it ;  but  she  is  culpable  if  she  does  not  fix 
at  the  outset  with  absolute  distinctness  the  meaning  of  her 
terms,  however  popularly  current,  and  then  use  the  terms, 
always  in  the  same  sense,  never  confounding  a  term  with 
other  terms  of  a  similar  but  not  identical  significance.  In 
allowing,  therefore,  such  expressions  as  “gold  has  value,” 
we  do  not  use  the  term  in  any  other  than  its  defined  sense, 
nor  imply  that  value  is  a  simple  quality,  but  employ  short¬ 
ened  forms  of  expression  long  consecrated  by  usage,  and 
avoid  circumlocutions  sure  to  become  tedious.  So  also,  by 
using  language  that  may  imply  that  value  exists  before  it 
is  realized  in  an  actual  exchange,  we  do  not  admit  that 
value  exists  independently  of  an  exchange ;  men  employ 
foresight,  put  forth  exertion,  practise  abstinence,  in  refer¬ 
ence  to  a  future  realization  of  value :  it  is  proper,  at  any 
rate  it  is  necessary,  to  speak  of  them  as  already  employed 
upon  value ,  and  of  value  itself  as  a  purchasing-power  resid¬ 
ing  in  this  or  that.  A  concession  to  the  exigencies  of  lan¬ 
guage  is  not  a  departure  from  the  exactness  of  science*  It 


122 


POLITICAL  ECONOMY. 


is  not,  accordingly,  true,  speaking  strictly,  that  value  is  a 
quality  of  gold  in  the  sense  in  which  weight  is  a  quality  of 
gold,  because  circumstances  are  easily  conceivable,  and  have 
often  occurred,  under  which  gold  would  have  no  value  at 
all.  To  the  crew  of  a  boat  abandoned  at  sea,  among  whom 
(he  last  biscuit  had  been  rationed  out,  a  bag  of  gold  belong¬ 
ing  to  one  of  the  men  would  not  purchase  a  biscuit  belonging 
to  another.  The  inherent  qualities  of  the  gold  are  present. 
It  is  still  hard  and  yellow  and  heavy.  But  valuable  it  is 
not.  It  will  not  purchase  any  thing.  Value,  therefore,  is 
not  an  inherent  and  invariable  attribute,  but  is  the  relative 
power  which  one  thing  has  of  purchasing  other  things.  This 
power  in  any  one  thing  will  vary  according  to  time  and  place 
and  circumstances.  It  may  cease  altogether,  as  in  the  case 
just  supposed,  or  it  may  rise  under  other  circumstances  to 
a  very  high  degree ;  but  whenever  it  exists,  it  exists  with 
reference  to  some  other  thing,  which  either  is,  or  is  supposed 
to  be,  exchanged  with  it.  Ten  cents  had  the  power  of  pur¬ 
chasing  my  pencil,  and  my  pencil  had  the  power  of  purchas¬ 
ing  ten  cents.  In  this  transaction  the  idea  of  value  is 
developed.  A  similar  transaction  first  introduced  that  idea 
into  the  world,  and  the  endless  succession  and  variety  of 
such  transactions  have  kept  the  idea  in  the  world,  and  will 
keep  it  here  till  the  end  of  time.  Value,  then,  speaking 
strictly,  is  not  an  independent  quality  of  the  pencil,  any 
more  than  it  is  an  independent  quality  of  the  cents.  Both 
are  necessary  in  order  that  the  value  of  either  may  be  con¬ 
ceived  of.  The  value  of  the  cents  is  estimated,  is  measured 
by  the  pencil ;  and  the  value  of  the  pencil  is  estimated,  is 
measured  by  the  cents.  In  one  word,  value  is  always  rela¬ 
tive,  and  never  absolute.  To  say  that  any  thing  has  an 
absolute  value  is  a  simple  contradiction  in  terms. 

But  why  was  I  desirous  to  part  with  good  United  States 
money  for  the  sake  of  the  pencil,  and  the  storekeeper  to  part 
with  a  good  pencil  for  the  sake  of  the  money  ?  The  answer 
to  this  question  will  ground  the  science  of  value  on  the  un- 


VALUE. 


123 


changing  principles  of  human  nature.  I  experienced  a  want 
which  the  pencil  was  adapted  to  satisfy.  He  experienced  a 
Want  which  the  money  was  adapted  to  satisfy.  But  between 
my  want  and  its  satisfaction,  both  of  which  were  personal  to 
me,  there  lay  an  effort,  to  be  made  either  by  myself  or  by 
somebody  else  in  my  behalf.  So,  between  his  want  and  its 
satisfaction,  both  of  which  were  personal  to  him,  there  lay 
an  effort,  to  be  made  either  by  himself  or  by  somebody  else 
in  his  behalf.  If  I  had  chosen  to  do  so,  I  might  have  made 
the  direct  effort  necessary  in  order  to  supply  myself  with  a 
pencil.  I  might  have  made  the  pencil  for  myself.  It  would 
indeed  have  been  a  long  and  tedious  process,  would  have 
required  a  learning  of  two  or  three  trades,  a  journey  to 
some  plumbago-bed,  the  working  and  preparation  of  the 
mineral,  and  various  other  subordinate  processes ;  still,  in 
the  course  of  half  a  life-time  it  might  perhaps  have  been 
done,  and  I  might  by  direct  efforts  have  supplied  myself 
with  a  pencil  as  good  as  that  which  I  purchased.  So,  too, 
the  storekeeper,  unless  the  laws  had  prevented  it,  might 
have  procured  for  himself  by  direct  efforts  the  metal  cents 
which  I  gave  him  in  exchange  for  the  pencil.  He  might 
have  dug  the  ores  for  himself,  refined,  alloyed,  and  minted 
them.  Had  we  chosen  respectively  to  take  this  course,  and 
each  been  able  to  satisfy  his  own  particular  desire  by  his 
own  unassisted  efforts,  the  processes  in  either  case  would 
have  had  no  relation  to  Political  Econonty.  There  would  be 
in  each  case  a  want,  an  effort,  a  satisfaction,  but  there 
would  be  no  exchange.  As  a  matter  of  fact,  however,  we 
exchanged  the  efforts  which  lay  between  our  respective  de¬ 
sires  and  their  respective  satisfactions.  I  desired  a  pencil, 
he  relieved  me  of  the  effort  necessary  to  make  it,  and  I 
experienced  the  satisfaction.  He  desired  the  cents,  I  re¬ 
lieved  him  of  the  effort  necessary  to  procure  them,  and 
he  again  experienced  the  satisfaction.  We  each  experi¬ 
enced  our  own  desires,  and  our  own  satisfactions,  but  we 
exchanged  efforts.  Precisely  in  this  exchange  of  efforts 


124 


POLITICAL  ECONOMY. 


arose  the  phenomenon  of  value.  I  parted  with  my  cents, 
which  had  cost  me  an  effort,  in  order  to  satisfy  my  desire 
for  a  pencil,  because  my  effort,  represented  in  the  cents, 
was  less  than  the  effort  it  would  cost  me  to  create  the 
pencil.  The  shopkeeper  parted  with  the  pencil,  which  had 
cost  him  an  effort,  in  order  to  satisfy  his  desire  for  the 
cents,  because  his  effort,  represented  in  the  pencil,  was  less 
than  the  effort  which  it  would  otherwise  cost  him  to  procure 
the  cents.  We  exchanged  efforts,  therefore,  for  our  mutual 
advantage. 

The  principles  of  human  nature,  then,  on  which  the  laws 
of  value  are  grounded,  are  these :  Men  have  desires,  are 
capable  of  making  efforts  to  meet  these  desires,  and  expe¬ 
rience  a  satisfaction  when  the  desires  are  met.  These  three 
are  indisputable  and  universal  facts.  But  while  the  desire 
and  the  satisfaction  are  strictly  personal  to  one  man,  that 
is  to  say,  belong  to  him  and  cannot  be  communicated  to 
another,  it  is  not  so  with  efforts.  Efforts  are  exchangeable. 
You  have  a  desire,  I  make  the  effort  to  meet  it,  and  you 
again  experience  the  satisfaction.  On  the  other  hand,  I 
have  a  desire,  you  make  the  effort  to  meet  it,  and  I  again 
have  the  satisfaction..  We  exchange  efforts,  but  experience 
our  own  satisfactions.  Desires,  efforts,  satisfactions,  con¬ 
stitute  the  one  circle  of  Political  Economy,  and  value  arises 
in  every  case  from  a  comparison  of  two  corresponding  efforts. 
Efforts  arc  naturally  irksome.  Everybody  wishes  to  realize 
as  large  a  satisfaction  as  possible  from  a  given  effort.  If, 
by  making  that  effort  for  another,  a  larger  satisfaction  will 
be  realized  than  by  expending  it  directly  for  one’s  self,  there 
is  an  immediate  and  pressing  motive  to  make  the  effort  for 
another,  and  to  reach  the  satisfaction,  not  directly,  but  indi¬ 
rectly,  that  is,  by  exchange.  A  precisely  similar  motive 
actuates  that  other  person.  If  his  given  effort  will  realize 
more  for  himself  by  being  put  forth  for  the  first  man,  and 
by  accepting  the  first  man’s  effort  in  return,  he  too  will  be 
anxious  to  exchange  efforts  with  the  first.  There  is  a  mutual 


VALUE. 


125 


advantage  in  thus  exchanging.  A  given  effort  realizes  better 
satisfactions  for  each  of  the  parties,  and  the  reason  for  ex¬ 
changes  is  thus  seen  to  spring  from  the  most  active  and 
invariable  principles  of  human  nature.  * 

The  exchange  of  the  cents  for  the  pencil,  and  the  pencil 
for  the  cents,  is  a  simple  case  of  value,  but  it  is  not  the 
simplest.  In  this  case  there  is  an  exchange  of  one  com¬ 
modity  for  another  commodity,  the  idea  of  value  is  instantly 
developed,  and  we  say  that  the  pencil  is  worth  ten  cents,  or, 
what  is  exactly  equivalent,  ten  cents  are  worth  the  pencil. 
There  are  two  things  in  every  exchange,  —  that  which  is 
parted  with  and  that  which  is  received.  Attention  should 
be  constantly  directed  to  both.  Many  errors  in  science,  and 
numberless  mistakes  in  legislation,  have  arisen  from  not 
attending  to  this  circumstance,,  as  if  it  were  the  glory  of  trade 
to  sell  rather  than  to  buy,  w7hereas  it  is  not  possible  to  sell 
without  buying,  because  the  pay  must  be  taken  for  what  is 
sold.  In  every  exchange,  therefore,  of  commodity  for  com¬ 
modity,  the  value  of  each  is  expressed  in  the  other,  and  the 
relation  between  the  two  purchasing-powers  is  adjusted. 
This  is  the  common  case  witnessed  in  the  shops,  on  the 
street,  and  in  the  market-places.  This  is  one  case  of  value ; 
and  there  are,  as  we  shall  soon  see,  but  five  other  possible 
cases,  and  each  of  these  presents  us,  in  principle,  with 
nothing  different  from  this.  Sometimes,  as  in  foreign  com¬ 
merce,  for  example,  when  commodities  are  rendered,  a  credit- 
claim  is  taken  in  return,  and  this  credit-claim  is  afterwards 
exchanged  against  another  credit-claim,  or  against  some 
personal  service,  or  against  other  commodities,  as  the  case 
may  be.  So  in  domestic  trade,  goods  or  labor  are  often  sold 
on  credit ,  as  it  is  called,  that  is,  against  a  claim  to  be  real¬ 
ized  in  future,  or  are  paid  for  in  paper  money,  which  is 
itself  a  credit-claim,  as  well  as  sold  against  other  goods  or 
metallic  money  or  personal  service,  in  which  case  the  trans¬ 
action  is  closed  up  at  once.  These  surface-differences  do 
not  alter  at  all  either  the  notion  of  value  or  its  laws.  Each 


126 


POLITICAL  ECONOMY. 


repeated  purchase  and  sale,  no  matter  in  which  form,  pre¬ 
sents  us  over  and  over  again  with  the  same  phenomenon, 
namely,  the  equalization  through  exchange  of  two  purchas¬ 
ing-powers.  This  ife  value,  and  is  the  sole  subject  of  our 
science. 

The  simplest  case  of  value,  however,  will  throw  light  upon 
tli3  more  complex  ones,  and  will  be  found  to  include  them. 
Two  farmers,  who  are  neighbors,  find,  on  talking  over  their 
respective  crops,  that  one  has  more  hoeing  and  less  haying 
this  year  than  usual,  and  the  other  less  hoeing  and  more 
haying.  A  says  to  B,  “  Come  over  and  help  me  hoe  in 
June,  and  I  will  go  over  and  help  you  hay  in  July.”  B 
agrees.  It  is  a  mutual  advantage.  And  so,  to  use  the  old 
expression,  which  is  better  here  than  an}r  scientific  terms  could 
be,  they  change  works.  B  does  a  service  for  A,  and  A  does 
a  service  for  B.  The  two  services  balance  each  other. 
The}"  are  mutually  exchanged  one  for  the  other ;  and  in  the 
verjT  proposal  thus  to  exchange  them  the  notion  of  value  is 
conceived,  and  in  the  exchange  itself  value  is  both  pro¬ 
duced  and  measured.  B’s  help  in  hoeing  is  worth  A’s  help 
in  haying. 

This  exchange  of  one  service  for  another  service  presents 
the  simplest  case  of  value  ;  and  we  now  proceed  to  show  that 
it  essentially  includes  all  other  cases.  If  it  can  be  shown 
that  value  is  alwa}7s  and  everywhere  the  same  thing,  that  it 
is  always  and  everywhere  tiie  relation  of  mutual  pur¬ 
chase  ESTABLISHED  BETWEEN  TWO  SERVICES  BY  THEIR  EX¬ 
CHANGE,  Political  Economy  will  be  seen  to  possess  one  grand 
characteristic  of  the  great  sciences,  namely,  simplicity. 
This  can  be  shown. 

Induction  has  been  busy  more  or  less  for  more  than  two 
thousand  years  in  trying  to  gain  a  complete  classification  of 
Values,  and  thus  to  reach  a  complete  definition  of  Property. 
Of  course  the  attention  of  men  was  first  drawn  in  the  way 
of  buying  and  selling  to  tangible  things,  and  the  balance 
was  very  early  used  to  equalize  the  things  exchanged  ac- 


VALUE. 


127 


cording  to  an  estimation  mutually  agreed  on  by  the  two  par¬ 
ties.  Thus  “  Abraham  weighed  to  Ephron  the  silver  he  had 
named  in  the  audience  of  the  sons  of  Heth  ”  as  a  return  for 
the  land  received  by  him  “for  a  possession.”  Thus  the 
early  Romans  called  buying  and  selling  mancipium , —  taken 
by  the  hand , — because  that  formality  was  required  in  the 
transfer  of  certain  things.  When  land  wras  sold,  a  turf  was 
sometimes  cut  from  it  and  passed  over  into  the  hand  of  the 
purchaser  in  token  of  the  sale.  The  balance  was  much  used 
in  all  sales  — per  ces  et  libram  —  even  in  imaginary  sales,  as 
when  a  father  manumitted  a  son.  But  society  has  never 
advanced  far  in  any  country,  before  it  has  been  observed  by 
somebody  that  intangible  things  are  bought  and  sold  also. 
Even  if  Aristotle  did  not  perceive  that  personal  services  or 
labor  are  a  part  of  property,  the  author  of  the  Eryxias 
stated  that  clearly  ;  and  even  if  the  Greeks  did  not  see  that 
abstract  rights  are  property,  the  Roman  lawyers  announced 
it  in  the  clearest  terms.  Keen  eyes  among  the  moderns  have 
watched  for  some  other  species  of  property  than  these  three, 
and  have  not  found  it.  The  Induction  is  completed  for  all 
time.  The  particulars  have  all  been  generalized,  and  not 
one  outlying  case  is  left.  Property,  as  including  these  three 
kinds,  has  been  neatly  defined  by  Ulpian,  and  the  definition 
can  never  be  improved. 

We  have,  then,  but  six  possible  cases  of  value,  since  there 
are  only  three  kinds  of  things  that  are  ever  exchanged  for 
the  sake  of  each  other.  These  are  :  — 

1.  A  commodity  for  a  commodity,  as  the  pencil  for  the 
cents. 

2.  A  commodity  for  a  service,  as  a  gold  eagle  for  a  law¬ 
yer’s  advice. 

3.  A  commodity  for  a  claim,  as  a  Howard  watch  for  a 
copyright. 

4.  A  service  for  a  service,  as  the  above  case  of  two  farmers. 

5.  A  service  for  a  claim,  as  a  year’s  work  for  a  U.  S. 

bond. 


128 


POLITICAL  ECONOMY. 


6.  A  claim  for  a  claim,  as  a  U.  S.  bond  for  railroad 
shares.1 

Blackstone  quoted  with  approval  from  the  Roman  civil¬ 
ians  the  four  valuable  considerations  in  cases  of  contract 
which  the  Romans  seem  to  have  clearly  and  constantly 
recognized.  This  list  is  quite  incomplete,  even  when  com¬ 
pared  with  principles  elsewhere  clearly  recognized  in  the 
civil  law  inself;  for  Ulpian  says,  “  We  are  accustomed  to 
buy  and  sell  Debts  payable  at  a  certain  event  and  on  a  certain 
day;”  and  again  he  says,  “  Under  the  term  Property  both 
Mights  of  Action  and  Rights  are  included.”  We  will  now 
give  the  list  as  Blackstone  gives  it,  and  then  give  the  six 
formulas  that  will  correct  and  complete  it. 

1.  Do  ut  des  ....  Commodity  for  commodity. 

2.  Facio  ut  facias  .  .  Work  against  work. 

3.  Facio  ut  des  .  .  .  Work  for  a  commodity. 

4.  Do  ut  facias  .  .  .  Commodity  for  work. 


A  full  statement  of  possible  valuable  considerations  is  the 
following :  — 


1.  Do  ut  des 

2.  Do  ut  facias 

3.  Do  ut  promittas 

4.  Facio  ut  facias  . 

5.  Facio  ut  promittas  . 

6.  Promitto  ut  promittas  . 


My  commodity  against  yours. 
My  commodity  for  your  work. 
My  commodity  for  your  promise 
My  service  against  yours. 

My  service  for  your  promise. 
My  promise  against  yours. 


Now  what  is  mutually  transferred  in  all  these  cases,  is  the 
ownership  or  property  in  something.  The  Latin  word  pro- 
prietas ,  from  which  our  word  property  comes,  means  both 
etymologically  and  legally  what  is  exclusively  one’s  own. 
What  is  exclusively  one’s  own  may  be  rightfully  sold,  pro¬ 
vided  the  consideration  be  sufficient,  and  may  thus  become 


1  Compare  the  Civil  Law,  Fr.  19,  §5,  5;  Blackstone’s  Commentaries, 
Book  ii.  444  ;  and  Macleod’s  Banking,  page  9  et  sen. 


VALUE. 


129 


exclusively  another’s.  Material  products  may  or  may  not 
be  passed  over  to  the  purchaser  at  the  time  of  the  sale,  but 
the  ownership  goes  over  to  him  in  all  cases.  Personal  ser¬ 
vices,  unlike  material  products,  are  not  commonly  resalable 
by  the  purchaser ;  sometimes  they  are,  as  when  one  hires 
out  for  a  time  his  own  hired  man.  Most  species  of  incor¬ 
poreal  property  are  transferable  at  will,  as  bank  checks, 
patent-rights,  and  promissory  notes.  But  this  transfer  of 
ownership,  a  feature  in  all  cases  of  value,  though  less  obvi¬ 
ously  so  when  simple  services  are  rendered,  does  not  present 
the  best  aspect  for  the  complete  understanding  of  value. 
That  aspect  is  presented  through  the  term  services. 

It  is  mutual  services,  as  well  as  mutual  ownership,  that 
are  exchanged  in  these  six  cases ;  and  the  word  services 
carries  us  deeper  into  the  central  phenomena  of  value. 
Thus  the  client,  with  five  dollars  in  his  pocket,  is  just  as 
much  in  position  to  do  the  lawyer  a  service,  as  the  lawyer  is 
in  position  to  do  him  a  service.  The  counsel  is  serviceable 
to  the  client,  and  the  dollars  are  serviceable  to  the  lawyer, 
and  so  they  exchange.  And  just  so  wrhen  commodities  are 
exchanged  with  each  other.  The  hatter  serves  you  with  a 
hat,  and  the  shoemaker  with  a  pair  of  boots,  and  you  serve 
them  with  six  dollars  each ;  or  if  the  hatter  be  in  want  of 
boots,  and  the  shoemaker  of  a  hat,  they  serve  each  other 
'with  their  respective  products.  In  every  case  of  value, 
therefore,  without  exception,  what  is  really  exchanged, 
whether  a  commodity  intervene  or  not,  are  mutual  services ; 
and  value  is  then  produced,  and  only  then,  wdien  two  per¬ 
sons  are  in  position  to  render  each  other  a  service  ;  and  the 
respective  services  being  rendered,  that  is  exchanged,  and 
the  balance  being  struck,  we  have  the  value  of  one  ex¬ 
pressed  in  the  other. 

If  this  view  of  the  matter  be  correct,  the  definition  of 
Value  that  has  just  been  given  must  be  correct  also.  This 
analysis  of  value  brings  us  directly  to  persons  as  the  central 
point  of  the  science,  and  makes  outward  things ,  though  still 


130 


POLITICAL  ECONOMY. 


of  vast  importance  in  their  relations  to  persons,  entirely  sub¬ 
ordinate  to  the  desires  and  estimates  of  the  persons  them¬ 
selves.  Even  in  the  exchange  of  tangible  things,  which  we 
have  called  commodities,  the  wants  and  tasks  of  persons  are 
the  chief  element  in  the  transaction  ;  the  character  and  skill 
of  persons  as  such  become  still  more  prominent  in  the  ex¬ 
change  of  what  we  have  called  personal  services  or  labor ; 
and  in  the  sphere  of  claims  or  credits,  which  always  relate 
to  future  time,  almost  every  thing  hinges  on  the  character  of 
persons  through  the  confidence  they  are  able  to  inspire.  As 
we  have  been  obliged  to  use  the  term  “  things  ”  in  two 
senses,  the  specific  sense  as  opposed  to  persons  and  the  gen¬ 
eral  sense  as  including  whatever  is  exchanged,  so  we  have 
been  obliged  to  use  the  term  “  services”  in  two  senses,  in 
the  specific  sense  as  personal  services  or  labor,  and  in  the 
broad  sense  as  rendering  any  thing  for  which  something  is  de¬ 
manded  in  return.  No  confusion  will  arise  from  these  ambi¬ 
guities,  for  the  context  will  always  show  in  which  sense  the 
terms  are  used.  Also,  people  sometimes  do  for  others  what 
are  called  services,  out  of  sympathy,  from  benevolence, 
from  duty ;  but  the  characteristic  of  these  is  that  they  are 
free  ;  nothing  is  demanded  in  return.  -These,  therefore,  fall 
in  the  sphere  of  ethics,  and  are  outside  the  pale  of  Political 
Economy.  There  is  no  such  thing  as  exchange  proper  within 
the  field  of  ethics,  and  there  is  nothing  else  but  exchange 
proper  within  the  field  of  economy.  This  principle  alone 
marks  the  boundary-line  between  the  sciences  referred  to. 
A  service,  then,  in  the  language  of  this  science,  and  as  the 
word  will  henceforward  be  used  in  these  pages,  is  any  thing 
rendered  to  another  in  view  of  a  return,  and  for  the  sake  of 
a  return.  The  man  who  furnishes  you  a  barrel  of  apples, 
does  you,  in  this  sense,  a  service  equally  with  the  phj'sician 
who  attends  upon  your  fever ;  and  you  pay  them  both  on 
precisely  the  same  principles.  You  render  to  each  an  equiv¬ 
alent  service  in  return.  To  pay  them  money  is  to  render 
them  a  service,  just  as  to  furnish  you  apples  and  medical 


VAL  UE. 


131 


advice  were  a  service  to  you.  Whether  a  commodity,  as 
apples,  intervene  or  not,  is,  as  far  as  value  is  concerned,  a 
matter  of  indifference.  The  more  specific  use  of  the  term 
“  service,”  as  opposed  to  a  commodity,  is  indeed  convenient, 
and  will,  doubtless,  continue  to  be  used :  the  broader  sense 
is  exceedingly  useful,  and,  by  its  aid,  we  clear  up  the  whole 
subject  of  value. 

This  ultimate  definition  of  Value,  namely,  that  it  is  the 

RELATION  OF  MUTUAL  PURCHASE  ESTABLISHED  BETWEEN  TWO 

services,  is  somewhat  like  the  definition  of  the  physiocrats, 
still  more  like  the  definition  of  Bastiat,  and  yet  it  is  different 
from  them  both.  The  physiocrats  said,  that  u  value  con¬ 
sists  in  the  relation  of  one  thing  exchanged  for  another .” 
Two  things  are  to  be  said  about  this :  first,  as  the  physio¬ 
crats  admitted  only  one  kind  of  property,  — richesse,  —  and 
consequently  only  one  kind  of  exchange,  that  of  material 
products,  their  definition  is  too  narrow,  —  their  word 
“thing”  meant  only  a  ph}7sical  thing  exchanged;  and  sec¬ 
ond,  there  is  an  indefiniteness  about  the  relation  itself  as 
expressed  by  them, — the  kind  of  relation  is  not  clearly 
given.  Bastiat’s  definition,  —  “  the  relation  of  two  services 
exchanged ,”  —  escapes' the  first  fault  by  means  of  the  word 
“  services,”  but  does  not  escape  the  second  fault.  Our  defi¬ 
nition  steers  clear  of  both  ;  and  as  an  elephant  tests  the 
bridge,  first  by  one  foot  and  then  by  another,  and  then  by 
all  his  weight,  so  we  are  willing  that  this  definition  should 
be  tested  by  all  economists,  however  cautious. 

The  definition  of  a  general  and  abstract  term  like  Value 
ought  certainly  to  be  both  general  and  abstract.  In  this 
point  of  view,  Macleod’s  definition,  however  excellent  in 
most  other  respects,  seems  to  us  to  be  defective.  lie  says  : 
“  The  value  of  any  economic  quantity  is  any  other  economic 
quantity  for  ivhich  it  can  be  exchanged .”  Yes  ;  but  this  does 
not  answer  the  question,  What  is  Value?  It  answers  the 
question,  What  is  the  value  of  any  specific  valuable  thing? 
We  have  alread}’  confessed  also  our  dissatisfaction  with 


132 


POLITICAL  ECONOMY. 


Macleod’s  use  of  the  word  “quantity”  in  this  connection. 
He  is  indeed  perfectly  right  in  claiming  that  every  valuable 
thing  whatsoever  can  be  measured  in  money,  and  we  saw 
before  that  this  is  a  great  advantage  in  all  economical  rea¬ 
soning ;  but  in  applying  the  term  “quantity”  with  all  its 
concrete  associations  to  each  economic  rendering  of  the 
three  kinds,  he  runs  a  risk,  which  is  still  more  plainly  seen 
in  Jevons,  of  leading  men’s  minds  back  to  the  concrete 
notions  of  the  first  and  second  schools.  Jevons  says  :  “To 
me  it  seems  that  our  science  must  he  mathematical ,  simply  be¬ 
cause  it  deals  with  quantities.  Wherever  the  things  treated 
are  capable  of  being  more  or  less  in  magnitude ,  there  the  laws 
and  relations  must  be  mathematical  in  nature.  The  ordinary 
laws  of  supply  and  demand  treat  entirely  of  quantities  of 
Commodity  demanded  or  supplied ,  arid  express  the  mode  in 
which  the  quantities  vary  in  connection  with  the  priced 9  To 
most  persons,  if  not  to  all  persons,  a  “  quantity  ”  means  a 
mass  or  mess  of  something.  Is  not  “services”  a  better 
term  than  4 4  quantities  ’  ’  ?  May  it  not  be  better  said  of  ser¬ 
vices  than  of  quantities  that  they  are  measurable  by  money? 
When  Siddons  acts,  and  Mehlig  pla}Ts,  and  Kellogg  sings,  in 
public,  is  not  their  respective  economic  rendering  rather  a 
service  than  a  quantity  ?  If  A  with  the  toothache  pays  the 
dentist  B  $5  for  pulling  out  the  tooth,  A’s  money  seems  to 
us  a  measure  of  B’s  service,  and  of  nothing  else.  We  have 
now  tracked  the  lion  of  Value  to  his  very  lair.  We  have 
reached  a  definition  that  seems  adequate  and  complete.  But 
for  the  sake  of  further  illustration  and  still  clearer  light  on  a 
central  point  that  has  long  lain  in  fog,  it  is  well  worth  our 
while  to  go  on  with  the  discussion,  and  to  enumerate  at 
length  some  of  the  reasons  why  we  may  feel  entirely  satisfied 
with  our  final  definition. 

1.  In  the  first  place,  this  definition  covers  naturally  and 
easily  all  those  anomalous  cases  of  value  which  have  been  so 
hard  to  reduce  under  any  other  general  view.  Take  for  in¬ 
stance  those  rare  cases  of  the  accidental  finding  of  things. 


VALUE. 


133 


like  a  large  diamond  or  a  nugget  of  gold,  which  proved 
afterwards  to  have  great  value.  The  second  school,  and 
more  especially  McCulloch,  claim  that  labor  is  the  source  of 
value,  and  that  the  purchasing-power  of  all  things  is  propor¬ 
tioned  to  the  labor  which  they  have  cost.  This  statement 
has  a  good  deal  of  truth  in  it  in  relation  to  certain  things  at 
certain  times  and  places,  but  it  will  not  do  at  all  as  a  gener¬ 
alization.  There  are  many  cases  that  it  does  not  cover. 
Indeed,  mere  effort,  mere  work,  in  itself  considered,  has  no 
tendency  whatever  to  create  value.  Much  effort,  much  work, 
as  b}"  a  dull  but  laborious  writer  of  a  book,  may  issue  in  very 
little  value.  Little  effort,  little  work,  as  by  a  skilful  pleader 
in  the  courts,  may  issue  in  very  great  value.  Labor  is  not 
so  much  a  cause  of  the  value  expected  to  accrue  as  it  is  the 
result  of  the  value  expected  to  accrue.  Whately  puts  this 
just  right  when  he  says:  u  In  this,  as  in  so  many  other 
points  in  Political  Economy,  men  are  prone  to  confound 
cause  and  effect.  It  is  not  that  pearls  fetch  a  high  price 
because  men  have  dived  for  them  ;  but,  on  the  contrary,  men 
dive  for  them  because  they  fetch  a  high  price.”  In  other 
words,  value  always  has  its  starting-place  in  Desires  ;  and 
although  Effort  of  some  sort  and  in  some  degree  is  always 
associated  with  desire  in  the  realization  of  value,  yet  the 
effort  aloue  is  never  the  cause  of  the  value,  nor  can  the 
value  always  be  said  to  be  proportioned  to  the  effort. 

We  can  reason  well  from  feigned  cases,  provided  only 
they  be  cases  liable  to  happen  :  let  us  suppose  a  case  that 
has  probably  often  happened  in  fact.  A  miner  chances  in 
his  work  to  find  a  gold  nugget  of  extraordinary  size  ;  it  is 
but  a  moment’s  labor  to  appropriate  the  prize  ;  but  then, 
such  as  it  was,  the  labor  was  his  own ;  he  is  now  the  un¬ 
doubted  proprietor  of  the  nugget ;  he  must  preserve  and 
defend  it  until  the  opportunity  come  to  sell  it ;  he  must  take 
it  to  the  buyer  whoever  and  wherever  he  may  be  ;  and  does 
he  sell  it  for  one  shilling  less  on  account  of  the  little  labor 
of  appropriating  it?  No.  He  is  now  in  position  to  do  a 


134 


POLITICAL  ECONOMY . 


great  service  to  anybody  wanting  gold.  He  demands  a  large 
service  in  return,  and  gets  it.  Gold  bears  a  market-rate  by 
the  pennyweight,  and  whoever  offers  it  in  any  quantity  may 
expect  to  receive  that  rate.  It  would  be  poor  mercantile 
logic  for  the  buyer  to  say  to  the  seller :  I  hear  that  you 
found  that  nugget  by  accident,  and  as  it  cost  you  but  a  few 
minutes’  labor  to  secure  it,  I  am  ready  therefore  to  give  you 
for  it  a  fair  valuation  of  your  time  expended.  He  rather 
reasons  in  this  way  :  Here  are  100  pennyweights  of  crude 
gold,  equivalent  to  70  pennyweights  of  coin  gold;  this 
miner  knows  in  a  general  way  the  market-rate  of  gold  of 
this  degree  of  fineness ;  I  cannot  get  it  elsewhere  for  less ; 
and,  therefore,  I  am  glad  to  give  him  his  price.  The  value 
is  not  determined  in  this  case  by  the  labor  expended,  but  it 
is  determined  by  the  service  rendered  ;  and  this  principle 
governs  all  cases  of  this  sort,  however  unique.  A  diamond 
larger  than  usual  found  in  Golconda,  in  Brazil,  in  South 
Africa,  is,  as  a  rule,  sold  in  accordance  with  the  same  prin¬ 
ciples  as  other  things ;  a  finder  indeed  may  sometimes  not 
know  what  it  is  that  he  has  found,  as  the  Swiss  soldier  who 
picked  up  the  Sanci  diamond  on  the  battle-field  of  Nancy 
from  the  hat  of  Charles  the  Bold  and  sold  it  to  a  clergyman 
for  a  gulden ;  on  the  other  hand,  the  slaves  in  Brazil  are 
stimulated  to  knowledge  and  diligence  by  the  rule,  that 
when  a  diamond  of  17  carats  is  found  he  who  finds  it  is  en¬ 
titled  to  his  liberty ;  but  on  the  whole  it  is  remarkable  that 
there  are  so  few  fortunate  accidents  in  the'  world  of  values 
anywhere,  labor  for  labor  is  the  almost  universal  circum¬ 
stance,  and  when  the  anomalous  case  arises  now  and  then 
it  comes  wdtk  all  other  cases  under  the  absolutely  universal 
formula  Service  for  Service.  If  the  seller  of  any  thing 
at  any  time  pitches  his  demand  too  high,  that  is,  at  a  point 
beyond  which  the  buyer  can  get  himself  served  by  another 
or  prefers  to  go  without  the  thing,  the  first  must  lower  his 
terms  or  not  trade ;  and  the  second  can  only  crowd  down 
the  first  to  the  point  at  which  he  can  find  another  purchaser 


VAL  UE. 


135 


or  prefers  to  retain  possession  himself.  The  comparison 
and  adjustment  of  these  two  services,  that  of  the  first  to  the 
second  and  that  of  the  second  to  the  first,  fixes  for  that  sale 
the  value  of  each  service. 

Here  we  must  tarry  a  moment  in  passing  to  note  what  an 
exceedingly  good  word  the  English  language  furnishes  us 
with  in  this  term  “  Service .”  It  combines  in  its  own  proper 
meaning  all  the  elements  which  make  up  and  which  vary 
value.  First,  it  implies  always  two  persons,  the  person  ren¬ 
dering  and  the  person  receiving  the  service.  Next,  it  always 
implies  some  effort  on  the  part  of  the  person  rendering,  and 
some  satisfaction  on  the  part  of  the  person  receiving  the 
service.  Thus  when  one  service  is  spoken  of  there  are 
always  implied  two  persons  and  two  things,  and  the  two 
things  are  the  effort  of  one  person  and  the  satisfaction  of 
another.  But  when  two  services  are  spoken  of  as  ex¬ 
changed,  as  is  always  the  case  in  Political  Economy,  there 
are  implied,  as  before,  two  persons,  each  of  whom  makes 
an  effort  for  the  other,  each  of  whom  is  recipient  of  a  satis¬ 
faction  which  comes  from  the  effort  of  the  other,  and  each 
of  whom  estimates  in  the  light  of  his  own  satisfaction  that 
which  is  received  as  compared  with  that  which  is  rendered. 
It  is  this  reciprocal  estimation  alone  that  constitutes  value  ; 
and  it  is  the  excellence,  we  may  almost  say  the  glory,  of  the 
term  Service,  that  it  gathers  up  in  its  own  signification  all 
the  elements  which  go  to  determine  value,  and  which  ever 
vary  its  amount. 

As  here  is  the  very  core  of  our  science,  a  little  further 
illustration  at  this  point  may  at  least  be  pardoned,  and  per¬ 
haps  will  be  well  bestowed.  Let  the  parties  be  A  and  B, 
in  position  to  render  each  other  a  mutual  service.  A  has  a 
desire  which  B’s  effort  can  meet,  and  B  has  a  desire  which 
A’s  effort  can  meet.  Up  to  the  point  when  the  exchange 
takes  place  there  are  only  four  elements  that  play  any  part 
in  the  transaction  as  preparatory  to  it,  namely,  two  desires 
and  two  efforts.  In  the  act  of  exchange  itself  tw^o  other 


136 


POLITICAL  ECONOMY. 


elements  come  into  being,  namely,  two  relative  estimates, 
A’s  estimate  of  B’s  effort  for  him  as  compared  with  his  own 
effort  for  B,  and  B’s  estimate  of  A’s  effort  for  him  as  com¬ 
pared  with  his  own  effort  for  A.  As  a  result  of  the  ex¬ 
change,  and  as  that  for  the  sake  of  which  the  whole  series 
took  place,  there  appear  two  other  elements,  namely,  tw~o 
satisfactions.  Here  is  the  whole  of  it.  Now,  then,  any 
change  in  any  one  of  the  first  four  elements  will  vary  value ; 
and  there  is  nothing  else  in  the  world  that  can  vary  it.  If 
A’s  desire  for  that  wdiich  B  is  ready  to  render  be  lessened, 
the  other  elements  remaining  the  same,  A’s  estimate  of  B’s 
effort  as  compared  with  his  own  is  lessened,  and  value  is  at 
once  affected.  If  A’s  desire  be  increased,  other  things  being 
equal,  his  estimate  of  B’s  service  as  compared  with  his  own 
is  increased,  and  value  is  affected.  Just  so  any  diminution 
or  enhancement  of  B’s  desire  for  that  which  A  is  ready  to 
render,  acts  at  once  upon  B’s  estimate  of  A’s  effort  as  com¬ 
pared  with  his  own,  and  consequently  acts  at  once  upon 
value.  Again,  any  change  in  either  effort  as  compared  with 
the  other,  such  as  its  becoming  more  or  less  onerous  than 
the  other,  will  of  course  affect  the  estimate  of  the  one  as 
measured  by  the  other,  and  of  course  also  wTill  vary  value. 
These  first  four  elements  then  are  not  only  the  elements  out 
of  which  value  subsequently  springs,  but  also  are  the  ele¬ 
ments  any  change  in  any  one  of  which,  the  others  remaining 
the  same,  will  tend  to  vary  value,  and  without  a  change  in 
some  one  of  which,  relatively  to  the  others,  value  never  will 
be  varied.  The  term  services  expresses  just  these  elements 
which  play  and  vary  as  preparatory  to  the  realization  of 
value.  Value  itself  is  realized  from  the  adjustment  of  the 
fifth  and  sixth  elements,  that  is  to  say,  from  the  equalization 
of  A’s  estimate  of  B’s  service  with  B’s  estimate  of  A’s 
service.  This  adjustment  also,  together  with  the  remaining 
elements,  the  two  satisfactions,  are  all  implied  in  the  ex¬ 
pression  mutual  services,  or,  if  you  please,  two  services 
exchanged. 


VAL  UE. 


137 


If  any  reader  objects  to  this  paragraph  as  abstract,  the 
reply  is,  it  is  no  more  abstract  than  the  subject-matter  is 
with  which  we  are  dealing ;  and  if  any  one  finds  difficulty  in 
the  relative  nature  of  the  transaction  unfolded,  it  can  only 
be  said,  that  Economy  starts  with  a  relation  and  has  to  do 
with  a  relation  every  step  of  the  way  to  the  end.  This  is  the 
one  intrinsic,  unavoidable  difficulty  that  lies  at  the  threshold 
of  the  science ;  and  whoever,  by  taking  pains  at  the  outset, 
familiarizes  this  difficulty  to  his  thoughts,  and  thus  over¬ 
masters  it,  will  walk  thenceforward  with  positive  pleasure 
throughout  the  whole  economic  domain.  If  there  ever  wms 
a  science  grateful  for  a  word,  as  lessening  its  inherent  diffi¬ 
culties  and  helping  explain  its  phenomena,  Political  Econ¬ 
omy,  which  has  wandered  more  than  twice  forty  years  in  the 
wilderness  of  “Wealth-,”  thankfully  accepts  in  the  term 
“  Service  ”  its  latest  and  most  important  gift. 

2.  In  the  second  place,  the  definition  of  Value  here  given 
expands  the  field  of  economics  to  its  full  and  natural  limits. 
Even  Adam  Smith,  and  the  English  economists  generally, 
while  really  considering  “  wealth  ”  as  consisting  of  material 
commodities  only,  have  experienced  a  difficulty  in  excluding 
from  the  domain  of  the  science  certain  immaterial  services, 
and  in  denying  value  to  those  services.  Some  have  tried  to 
avoid  this  difficulty  in  one  way  and  some  in  another.  Some 
have  called  those  who  render  a  mere  service  to  societ}? 
“unproductive  laborers,”  and  have  gifted  with  the  title  of 
“productive  laborers”  all  those  who  bring  forward  some 
vendible  commodity.  Stuart  Mill  was  inclined  to  enlarge  his 
terms  so  as  to  take  in  all  those  sorts  of  mere  services  whose 
action  goes  to  swell  the  volume  of  material  commodities.  He 
would  allow,  that  persons  employed  in  a  factory  to  teach  the 
operatives  knowledge  needful  to  the  doing  of  their  daily  tasks 
were  productive  laborers  ;  while  ordinary  school  teachers,  as 
such,  he  put  altogether  outside  the  realm  of  economics.  It 
is  conceded  then  that  value  may  reside  in  some  services  ; 
and  why  not  then  in  all  services  put  forth  for  the  sake  of  a 


138 


POLITICAL  ECONOMY. 


return  ?  Why  allow  value  to  a  service  that  may  come  to  be 
indirectly  embodied  in  a  commodity,  and  deny  the  term  to 
another  service  just  as  necessary  to  our  comfort  and  just  as 
much  purchased  that  is  not  thus  embodied?  Why  class  the 
brick-maker  and  the  hod-carrier  as  productive  laborers,  and 
deny  the  epithet  to  the  bishop,  whose  residence  they  are  at 
work  upon,  and  whose  salary  as  a  clergyman  pays  their 
Avages?  The  truth  is,  there  is  no  ground  for  this  distinction  ; 
and  the  A  ery  difficulty  which  the  various  writers  have  found 
in  trying  to  make  it,  is  a  pretty  sure  proof  that  it  ought  not 
to  be  made  at  all.  By  putting  its  definitions  so  that  value 
can  only  be  supposed  to  dwell  in  tangible  commodities, 
Economy  excludes  itself,  without  any  good  reason,  from  the 
largest  and  best  portion  of  its  oavh  field. 

Let  us  now  see  if  there  be  any  good  reason  for  this  nar¬ 
rowness.  An  example  here  is  better  than  a  syllogism.  A 
man  buys  a  spelling-book  for  his  boy,  for  the  sake  of  his 
learning  to  read.  He  then  hires  a  teacher  to  teach  him  to 
read.  According  to  the  usual  definitions  the  spelling-book 
has  A7alue,  while  the  service  of  the  teacher  has  none.  But 
why  has  it  none?  It  has  to  be  paid  for,  certainly,  as  much 
as  the  spelling-book  has  to  be  paid  for.  There  are  two  sepa¬ 
rate  exchanges  ;  first,  of  money  for  the  spelling-book,  and 
second,  of  money  for  the  service.  Both  are  made  with  the 
same  object  in  view,  namely,  that  the  boy  may  learn  to  read. 
The  want  of  a  spelling-book  and  the  want  of  a  teacher  are 
the  two  external  obstacles  in  the  way  of  reaching  that  object ; 
and  the  father  overcomes  them  both  by  similar  means,  that 
is  to  say,  by  an  exchange  ;  and  there  is  no  such  difference 
in  the  two  transactions  as  will  justify  or  even  tolerate  the 
distinction  sought  to  be  made  between  them.  The  teacher 
sells  his  service.  The  shopkeeper  sells. his  book.  The 
father  renders  a  service  to  each  equivalent  to  that  received 
from  each.  Political  Economy  now  claims  jurisdiction  over 
both  transactions  alike,  and  affirms  ATalue  as  truly  of  the 
service  as  of  the  commodity,  and  more  truly  of  the  service 


val  ue. 


139 


than  of  the  commodity,  inasmuch  as  it  stands  ready  to  prove 
that  so  far  as  value  resides  in  any  commodity  it  resides  there 
simply  in  virtue  of  the  human  services  which  have  been  con¬ 
cerned  in  it  and  in  that  for  which  it  is  exchanged.  What  is 
ultimate,  therefore,  in  all  exchange,  is  services  and  not  com¬ 
modities  ;  and  the  services  which  are  bought  and  sold  in 
every  department  of  life,  the  services,  for  example,  of  the 
lawyer,  the  physician,  the  clergyman,  the  teacher,  the  editor, 
the  musician,  fall  as  much  within  the  province  of  Political 
Economy  as  the  traffic  of  commodities  in  the  market-place. 
Our  science  asserts  its  claim  of  jurisdiction  wherever  services 
are  mutually  exchanged. 

3.  A  third  advantage  of  the  definition  of  Value  now  given, 
and  one  closely  connected  with  the  last,  will  be  seen  in  the 
fact  that  it  helps  free  the  discussion  from  a  perplexing  error 
which  has  long  infected  this  class  of  inquiries,  namely,  that 
value  is  somehow  or  other  connected  with  matter.  This 
notion  has  controlled  most  of  the  definitions  and  develop¬ 
ments  of  the  science  hitherto  ;  has  led,  as  we  have  just  seen, 
to  groundless  distinctions  between  personal  services ;  and 
has  taken  possession  of  language  so  thoroughly  that  no  judi¬ 
cious  writer  will  attempt  at  this  late  day  to  dislodge  from 
that  strongest  of  all  citadels.  Rather  than  disturb  the  cur¬ 
rent  nomenclature  of  life  and  business,  the  wise  economist 
will  allow  such  expressions  as  these  to  stand  :  Gold  has  value, 
strawberries  have  value.  But  it  is  very  easy  to  -show  and 
very  important  to  see  that  value  does  not  reside  in  matter, 
or  in  any  form  of  matter,  but  only  in  human  services 
exchanged ;  and  that,  therefore,  Value  is  never  of  God's 
creation ,  hut  always  of  men's  exertion.  For  example,  the 
physical  thing,  Land,  and  the  physical  thing,  Silver,  have 
been  wrought  by  God ;  but  the  value  of  the  land,  and  the 
value  of  the  silver,  are  matters  brought  about  by  living  men. 
The  distinction  between  a  certain  thing  as  existing,  and  even 
as  existing  in  a  certain  form,  and  the  same  thing  as  valuable , 
is  a  vital  distinction  in  economics.  Moreover,  the  distinction 


140 


POLITICAL  ECONOMY. 


\ 


between  the  utility  of  something,  that  is,  its  capacity  to 
gratify  some  human  desire,  and  the  value  of  that  same  thing, 
that  is,  its  power  to  purchase  something  else,  is  another 
vital  distinction  in  economics,  as  we  shall  fully  see  shortly. 
No  effort  of  men  can  add  one  particle  to  the  existing  matter 
of  the  globe,  but  it  has  been  supposed  that  the  efforts  of 
men,  by  changing  the  form  of  existing  matter,  impart  the 
quality  of  value  to  it,  and  that  thenceforth  the  value  remains 
fixed  in  the  matter  itself.  The  efforts  of  a  woodman,  for 
example,  with  the  co-operation  of  nature,  can  transform  the 
stock  of  a  tree  into  wooden  bowls,  and  value  is  now  supposed 
to  reside  in  the  vendible  bowls,  and  the  current  language  is, 
that  each  bowl  has  a  value  of  fifty  cents.  Why  has  it  a 
value  of  fifty  cents  ?  Clearly  enough,  to  reward  his  service 
who  felled  the  tree,  and  sawed  the  block,  and  then  hollowed 
out  the  bowl.  But  the  service  having  been  employed  upon 
the  matter,  and  being  embodied  in  it,  is  not  what  is  really 
sold  now  the  matter,  and  not  the  service?  We  answer,  No. 
What  is  really  sold  is  the  service,  and  not  the  matter.  And 
this,  which  at  first  sight  might  not  be  thought  important,  but 
which  is  really  very  important,  becomes  apparent  as  soon  as 
we  reflect  that  any  changes  in  the  conditions  of  the  service 
instantly  affect  the  value.  Our  woodman  has  on  hand  a 
stock  of  one  hundred  bowls,  wThich  he  offers  for  sale  at  fifty^ 
cents  apiece,  as  fairly  rewarding  his  personal  services  in  their 
production.  But,  unknown  to  him,  an  enterprising  neighbor 
has  invented  a  machine  which  enables  him  to  make  bowls  in 
every  respect  equal  to  the  others,  and  to  offer  them  at  twen¬ 
ty-five  cents  apiece.  Whoever  now  wants  a  wooden  bowl 
can  have  that  service  rendered  him  for  twrenty-five  cents 
return.  The  first  man  finds  that  he  cannot  sell  a  bowl  for 
over  twenty-five  cents,  and  that  his  stock  of  one  hundred 
has  sunk  at  once  in  value  from  fifty  dollars  to  tweutj’-five 
dollars.  What  is  the  matter  with  his  bowls?  The  matter 
is  not  in  the  matter.  The  matter  is  all  there,  and  the  form 
of  the  matter  is  all  there,  but  the  value  is  just  one-half 


VALUE. 


141 


escaped,  because  the  service  which  he  can  render  to  a  buyer 
by  a  bowl  has  been,  by  the  enterprise  of  his  neighbor,  just 
one-half  lessened.  Value  then  follows  the  fortunes  of  ser¬ 
vices,  and  varies  as  they  vary,  just  as  much  when  they  have 
been  employed  upon  commodities,  as  when  they  are  inde¬ 
pendent  of  them,  and  we  see  that  the  value  resides  in  services 
compared,  and  not  in  matter  at  all.  To  render  and  receive 
services  are  a  function  of  persons ,  and  the  qualities  of  matter 
are  subordinate  to  that. 

We  now  proceed  to  indicate  the  manner  in  which  language 
came  to  be  used  in  such  a  way  as  gives  color  to  the  notion 
that  value  resides  in  the  commodities  rather  than  in  the  ser¬ 
vices.  An  instance  will  bring  the  whole  subject  before  ns 
clearly.  In  many  parts  of  the  United  States  delicious  wild 
strawberries  may  be  had  in  their  season  for  the  simple  pick¬ 
ing.  The  pastures  and  meadows  are  open  to  every  comer, 
and  the  strawberries  are  considered  to  belong,  not  to  the 
owners  of  the  fields,  but  to  any  one  who  takes  the  labor  of 
picking  the  fruit.  Let  us  suppose  that  my  family  are  fond 
of  the  berries,  and  that  no  member  of  it  likes  to  undergo 
the  labor  of  picking  them,  and  that  I  hire  some  girl,  who 
offers  her  services  for  the  purpose,  to  go  to  the  fields  and 
gather  some  of  the  fruit  for  us.  When  she  returns  I  pay 
her  for  her  service.  She  does  not  conceive  of  any  value 
residing  in  the  strawberries  themselves.  Neither  do  I.  She 
makes  a  series  of  efforts  for  the  gratification  of  my  f amity, 
and  is  paid  for  her  efforts.  Language  recognizes  the  true 
state  of  the  case,  and  she  does  not  say  now  that  she  sells  us 
the  berries,  and  we  do  not  speak  of  buying  the  berries  of 
her.  She  thinks  only  of  her  service,  we  think  only  of  her 
service,  she  is  paid  only  for  her  service  :  language  is  exact 
in  the  premises.  The  next  day,  as  the  giil  is  about  to  go 
for  us  again,  my  neighbor  says  to  her,  “You  bring  ne  as 
many,  and  I  will  pay  you  as  much.”  The  third  day,  a  sec¬ 
ond  neighbor  makes  a  similar  bargain  with  her,  and  she 
brings  strawberries  for  the  three  families,  and  is  paid  in 


142 


POLITICAL  ECONOMY. 


each  case  for  her  service.  The  girl,  on  the  fourth  day, 
taking  it  for  granted  that  we  shall  be  likely  to  want  straw- 
berries  that  day  also,  does  not  wait  to  be  sent,  makes  no 
bargain  for  her  services  beforehand,  but  goes  and  gathers 
the  fruit.  This  time  there  is  a  change  of  language  when 
she  comes  to  my  door.  She  now  offers  to  sell  me  straw¬ 
berries.  u  How  much  are  they  worth?  ”  I  ask.  She  names 
probably  the  same  sum  which  she  had  before  received  for 
the  service  of  picking  the  same  quantity.  She  could  not 
materially  increase  it,  because  there  are  doubtless  other 
girls  who  are  ready  to  render  the  service  which  she  before 
rendered,  at  the  same  rate.  But  attention  is  now  drawn 
away  from  the  service  to  the  berries,  and  the  idea  of  value 
is  attached  to  the  berries,  and  language  adopts  the  illusion, 
and  says,  “  the  berries  are  worth  so  much.”  Who  does  not 
see,  however,  that  the  transaction  is  substantially  the  same 
as  before  ?  Who  does  not  see  that  it  is  only  by  a  figure  of 
speech,  convenient  indeed,  but  still  only  a  figure,  that  the 
berries  are  now  said  to  have  value  ?  If  there  be  no  differ¬ 
ence  in  the  last  case  as  compared  with  the  former  cases  in 
the  two  desires  and  in  the  two  efforts,  it  is  plain  to  reason 
that  there  can  be  no  difference  in  the  value,  and  conse¬ 
quently  no  difference  iu  that  which  is  really  sold.  But  my 
desire  for  the  berries,  my  effort  as  represented  in  the  price 
paid,  her  desire  for  the  money,  and  her  effort  as  represented 
in  the  picking,  are  all  just  as  before.  She  expected  me  to 
take  them,  and  I  took  them  as  before.  The  value,  there¬ 
fore,  the  purchasing-power,  resides  not  in  the  berries,  but 
in  the  service  ;  that  is  to  say,  in  that  which  she  renders  as 
compared  with  that  she  receives ;  and  it  is  only  a  freak  of 
language  which  leads  us  to  suppose  otherwise. 

This  is  but  a  simple  instance,  but  the  principles  of  the 
instance  are  applicable  to  all  commodities  whatsoever.  It  is 
only  mediately  and  figuratively  that  commodities  can  be  said 
to  have  value  at  all ;  and  if  we  use  the  common  language, 
and  say  that  they  have  value,  we  must  always  remember 


VALUE . 


143 


that  they  have  it  simply  and  solely  in  consequence  of  the 
human  services  which  have  been  employed  upon  them,  as 
related  to  those  other  human  services  for  which  they  may  be 
exchanged.  If  this  be  true,  and  it  seems  to  us  certain  that 
it  is  true,  it  throws  a  flood  of  light  upon  the  whole  field  of 
value.  More  attention  must  be  given  hereafter,  in  Political 
Economy,  to  persons,  and  less  to  things.  Man  and  his 
wants,  man  and  his  efforts,  become  at  once  the  chief  topics, 
while  the  material  products  on  which  efforts  are  employed, 
and  which  minister  to  wants,  sink  in  relative  position.  It 
follows  also  from  this  distinction,  that  there  is  not  so  much 
difference  as  is  commonly  supposed,  when  a  man  works  for 
others,  and  when  he  sets  up  for  himself,  —  between  a  jour¬ 
neyman  and  a  master.  The  journeyman  sells  his  services, 
and  the  master  sells  nothing  more  or  other  than  his  own  ser¬ 
vices.  The  services  of  the  master  may  not  be  manual,  they 
may  be  merely  supervisory,  or  they  may  be  connected  with 
the  use  of  his  capital ;  but  the  finished  product,  when  it  is 
ready  for  the  consumer,  represents  the  aggregate  of  the 
human  services  which  have  been  employed  upon  it,  and  who¬ 
ever  sells  it,  sells  those  services,  and  its  ultimate  value  is 
determined,  as  all  other  value  is,  by  a  double  comparison, 
the  purchaser’s  comparison  of  the  service  of  the  product  to 
him  with  that  which  he  renders,  and  the  seller’s  comparison 
of  the  service  he  receives  with  that  of  the  product.  Service 
for  service,  in  the  last  analysis,  rather  than  commodity  for 
commodity,  is  the  rule  of  value  and  the  law  of  exchange. 

4.  In  the  fourth  place,  a  principal  merit  of  the  definition  of 
value  insisted  on  in  this  chapter  is  the  easier  discrimination 
which  it  allows  between  Value  and  Utility.  It  is  absolutely 
essential  to  our  progress  in  economics  that  we  keep  distinct 
in  our  minds  the  two  ideas  underlying  these  two  words. 
Whole  discussions  in  Adam  Smith  are  marred  by  his  not  con¬ 
sistently  attending  to  the  distinction,  which  he  himself  draws 
in  one  place,  between  u  value  in  use  and  value  in  exchange  :  ” 
meaning  by  the  former  expression  simple  utility.  Say  mixes 


144 


POLITICAL  ECONOMY. 


up  the  two  ideas  even  more  completely  than  Adam  Smith 
does  ;  and  the  errors  of  the  two  writers  in  this  respect  gave 
rise  to  the  twentieth  chapter  of  Mr.  Ricardo’s  book,1  in 
which  the  difference  between  utility  and  value  is  pretty 
clearly  unfolded.  Mr.  McCulloch,  too,  always  insists  upon 
this  difference,  and  correctly  maintains  that  the  distinguish¬ 
ing  characteristic  of  utility  is,  that  it  is  gratuitous  ;  although 
the  theory  of  value  of  each  of  these  writers  is  too  narrow, 
unduly  restricting  the  field  of  Political  Economy  by  assum¬ 
ing  that  value  rigidly  inheres  in  commodities  only.  The  ex¬ 
ample  of  these  writers  shows  that  the  distinction  referred  to 
can  be  made  even  under  their  definition  of  value,  but  it  is 
not  so  easity  and  practically  made  as  under  the  true  defini¬ 
tion,  because  in  the  true  definition  attention  is  inevitably 
drawn  to  two  persons,  instead  of  to  one  thing,  and  utility, 
which  is  simple  capacity  to  gratify  an}’  desire,  is  neatly  dis¬ 
criminated,  even  in  the  nomenclature  itself,  from  the  mutual 
efforts  by  which  the  mutual  desires  are  met.  The  word  Ser¬ 
vice  enables  us  to  draw  the  distinction,  and  to  hold  it  fast. 

Utility,  then,  is  the  capacity  which  any  thing  or  any  service 
lias  to  gratify  any  human  desire  whatsoever.  Political 
Economy  has  nothing  to  do  with  the  estimation  in  which 
different  desires  are  held  by  a  philosopher  or  a  moralist.  It 
is  enough  to  constitute  for  it  utility,  if  any  thing  will  meet 
anybody’s  desire  or  serve  anybody’s  purpose.  In  this  sense, 
which  is  the  etymological  and  only  just  sense  of  the  word, 
ardent  spirits  have  utility  just  as  wheat  has  utility.  The 
same  thing  may  have  no  utility  for  one  man,  a  low  utility 
for  another,  and  a  very  high  utility  for  a  third ;  since  the 
first  has  no  desire  for  it,  the  second  a  feeble,  and  the  third  a 
strong  desire  for  it.  Desires  are  personal  to  individuals. 
There  is  no  common  standard  with  which  they  ma}’  be  com¬ 
pared.  They  are  not  exchangeable.  Utility  is  the  capacity 
which  any  thing  has  of  meeting  any  one  of  these  desires 
at  any  time  or  in  any  place.  But  some  things  have  this 
1  Principles  of  Political  Economy  and  Taxation. 


VAL  UE. 


145 


capacity  in  a  high  degree  which  are  never  exchanged,  which 
are  never  bought  or  sold,  and  which  consequently  can  have 
no  value.  The  air  we  breathe,  the  light  in  which  we  recreate 
ourselves,  the  water  w*e  drink  from  the  spring  or  brook,  all 
have  the  highest  utility,  but  no  value.  They  connect  them¬ 
selves  with  no  service.  We  give  nothing  for  them.  They, 
and  such  as  they,  are  the  direct  gifts  of  God.  They  are 
gratuitous. 

But  utility^  is  always  present  in  all  value  also,  since  it  is 
an  element  in  all  service  ;  and  the  utility  that  appears  in 
connection  with  value  is  always  derived  partly  from  Nature 
and  partly  from  man.  It  is  impossible  to  say,  in  any  given 
case,  how  much  is  attributable  to  Nature  and  how  much  is 
attributable  to  man.  It  might  seem  at  first  sight,  as  if,  in 
the  case  of  the  diamond,  or  in  the  case  of  the  strawberries, 
the  utility  were  wholly  the  gift  of  Nature,  but  the  diamond 
undiscovered  among  the  pebbles,  and  the  strawberries  un¬ 
picked  upon  the  meadows,  can  hardly  be  said  to  have  utility, 
much  less  value.  The  human  service  that  fits  each  of  these 
to  meet  a  present  desire  is  an  essential  contributor  to  their 
utility.  On  the  other  hand  it  might  seem  as  if  the  utility  of 
a  painting  were  wholly  referable  to  the  art  of  the  painter ; 
but  the  tenacity  of  the  canvas,  the  flexibility  of  the  brush, 
and  the  brilliancy  of  the  colors,  are  the  contribution  of 
Nature.  Although,  therefore,  all  utility  that  ever  appears 
in  connection  with  value  is  partly  due  to  the  efforts  of  men, 
it  is  none  the  less  essential  to  clear  thinking  in  this  depart¬ 
ment  to  separate  distinctly  in  the  mind  the  utility  from  the 
value.  The  utility  of  a  service  may  be  great  and  its  value 
little  ;  the  utility  of  a  service  may  be  great  and  its  value  also 
great.  They  are  distinct  things.  They  become,  as  it  were, 
commingled  in  the  service  rendered,  but  the  utility  is  one 
thing,  and  the  value  a  distinct  thing.  Utility  is  ultimate : 
value  is  mediate.  Utility  is  absolute  with  reference  to  the 
individual :  value  is  always  relative. 

The  utility  involved  in  every  valuable  service  is  derived 


146 


POLITICAL  ECONOMY. 


from  two  sources,  —  the  free  contribution  of  Nature,  and 
the  onerous  contribution  of  man  ;  but  the  value  of  such  ser¬ 
vices  in  general  tends  perpetually  to  become  proportionate 
to  the  onerous  human  contribution,  and  not  to  the  aggregate 
utility.  If  the  service  be  unique,  if  only  one  person  or  a 
few  be  in  a  position  to  render  it,  no  useful  principle  can  be 
laid  down,  which  shall  discriminate  the  two  components  of 
the  utility ;  but  in  respect  to  the  vast  mass  of  services,  of 
which  a  market  rate  can  be  predicated,  it  is  very  clear  that 
the  competition  with  each  other  of  those  who  are  ready  to 
render  them,  will  fix  the  current  value  at  a  point  which  shall 
just  about  compensate  for  the  onerous  elements  involved. 
That  portion  of  the  utility  which  is  the  free  gift  of  Nature 
will  be  very  nearly  a  common  factor  in  that  whole  set  of  ser¬ 
vices.  The  action  of  competition  will  eliminate  this  com¬ 
mon  factor,  and  tend  constantly  to  determine  value  on  the 
basis  merely  of  what  man  has  done  to  impart  utility  to  those 
services.  Thus,  if  ten  men  bring  ten  horses  to  the  market 
to  exchange  against  money,  though  the  utility  of  the  horses 
be  derived  in  large  degree  from  the  gifts  of  Nature,  yet 
there  are  some  of  the  owners  who  wall  be  willing  to  part 
with  their  property  at  a  price  that  will  compensate  them  for 
what  they  themselves  have  contributed  towards  that  utility. 
The  action  of  these  will  tend  to  fix  the  price  of  the  whole 
ten.  There  is  no  tendency  in  value,  then,  to  proportion  it¬ 
self  to  the  aggregate  utility  of  a  service,  but  there  is  a  ten¬ 
dency  in  value  to  proportion  itself  to  the  aggregate  of  the 
onerous  human  efforts  represented  in  a  service. 

Utility  and  Value,  then,  are  distinct  things;  even  the 
physiocrats  recognized  this  in  their  well-known  distinction 
between  liens  and  ricliesse;  some  things,  as  air,  have  a  high 
utility  and  no  value,  and  other  things,  as  strawberries,  may 
have  a  high  utility  and  a  low  value,  and  still  other  things,  as 
a  portrait,  have  a  high  utility  and  a  high  value  also  ;  because 
the  strawberry  girl  cannot  charge  for  all  that  lias  been  done 
for  the  fruit  in  the  wonderful  laboratory  of  Nature,  since 


VALUE. 


147 


there  are  doubtless  other  girls  willing  to  bring  it  for  a  fail 
equivalent  of  their  personal  efforts  only,  and  because  the 
portrait-painter  has  put  a  skill  that  is  rare  and  an  exqui¬ 
site  service  into  the  canvas  that  he  sells.  The  history  of 
Economy  is  full  to  a  surfeit  of  the  theoretical  errors  and 
of  the  practical  blunders  which  have  come  from  confound¬ 
ing  value  with  utility  ;  and  from  not  attending  to  the  fact 
that  all  utility,  until  some  human  service  has  been  mingled 
with  it,  is  absolutely  free.  God  is  a  Giver.  He  gives 
sunlight  and  air  and  water  in  abundance.  He  gives  the 
earth,  with  all  its  materials,  and  with  all  its  powers,  and 
with  all  its  spontaneous  fruits,  gratuitously  to  man.  At  the 
very  first,  He  gave  to  man,  “  dominion  over  the  fish  of  the 
seas,  and  over  the  fowl  of  the  air,  and  over  every  living 
thing  that  moveth  on  the  earth.”  So  far  forth  as  these  gifts 
minister  directly  to  men’s  wants,  there  is  utility  indeed,  but 
no  value.  But  since,  for  the  most  part,  human  services  are 
required  to  mould  these  gratuitous  materials,  to  harness  these 
gratuitous  powers,  to  make  these  gratuitous  fruits  and  ani¬ 
mals  available  for  use,  and  since  services  for  this  purpose 
are  exchanged  among  men,  value  springs  up  in  connection 
with  these  utilities,  but  must  not  be  confounded  with  them. 
The  utilities,  disengaged  from  the  service,  are  free.  God 
never  takes  pay  for  any  thing,  and  has  not  authorized  any¬ 
body  to  take  pay  in  his  behalf ;  what  is  paid  for  is  the  ser¬ 
vice  of  man,  and  not  the  bounty  of  Nature.  Even  the 
powers  of  Nature  which  men  avail  themselves  of  by  machine¬ 
ry,  such  as  water,  wind,  and  steam,  all  work  for  nothing : 
water  gravitates,  and  wind  blows,  and  steam  puffs,  for  noth¬ 
ing.  These  all,  and  such  as  these,  help  to  create  utilities, 
but  ultimately  no  value.  Value  is  in  the  service  which 
makes  the  machine,  and  in  the  service  which  tends  it,  but  in 
the  power  which  moves  it,  unless  that  power  be  human  mus¬ 
cle,  there  is  no  value. 

5.  In  the  fifth  place,  this  nomenclature  helps  us  to  get 
rid  once  for  all  of  one  or  two  mischievous  expressions 


148 


POLITICAL  ECONOMY. 


that  have  long  vexed  the  discussions  on  Value.  The  worst 
of  these  is  the  term  “ intrinsic  ”  as  applied  to  value.  This 
adjective  almost  always,  if  not  always,  misleads  the  person 
who  uses  it  in  this  connection.  There  is  only  one  kind 
of  value  in  economics,  and  that  is  value  as  we  have  now 
defined  it,  and  the  use  of  any  adjective  that  implies  that 
there  is  another  kind  is  of  course  misleading  and  vicious. 
Besides,  this  adjective  strongly  implies  that  value  is  some¬ 
thing  inherent  in  matter,  —  an  assumption  which  we  have 
now  seen  to  be  false.  Sometimes  the  phrase  “intrinsic 
value”  is  used  to  mean  what  is  much  better  expressed  by 
the  term  Utility,  as  when  one  speaks  of  the  “  intrinsic 
value”  of  a  bushel  of  wheat,  meaning  its  utility  as  food. 
Sometimes  again  the  phrase  is  used  as  if  it  were  equivalent 
to  cost  of  production,  in  which  sense  it  is  sometimes  con¬ 
trasted  with  “market  value;”  but  the  phrase  “natural 
value,”  another  expression  worse  than  needless,  is  perhaps 
more  often  employed  in  this  sense  of  cost  of  production. 
Both  of  these  adjectives  should  be  wholly  avoided  as  pitchy, 
and  all  other  expressions  that  imply  more  kinds  of  value 
than  one.  Value  is  value.  The  phrase  “market  value” 
is  well  enough,  because  it  is  often  convenient  to  mark  the 
rate  at  which  something  is  actually  selling  in  contradistinc¬ 
tion  from  another  rate  asked  or  bid.  The  only  place  in 
■which  the  epithet  “  intrinsic”  is  even  tolerable  in  economics 
is  in  relation  to  certain  coins,  whose  value  is  made  by  law 
greater  than  the  value  of  the  metal  contained  in  them  would 
otherwise  he.  For  example,  any  twro  half  dollars  are  legally 
equal  in  value  to  a  silver  dollar,  but  the  pure  silver  in  them 
is  only  346.22  grains  to  371.25  grains  in  the  dollar;  so  that 
one  might  say  without  great  offence,  that  the  actual  value 
of  the  small  silver  is  greater  than  the  intrinsic  value,  so  far 
as  the  silver  dollar  is  the  standard ;  but  it  would  be  much 
better  to  saj^  in  such  cases,  that  the  nominal  or  legal  value 
is  greater  than  the  hullio?i  or  metal  value.  The  coin  as  hid - 
lion  is  not  bought  or  sold,  and  so  actually  has  no  value:  the 


VALUE. 


149 


coin  as  coin  finds  its  value  like  every  thing  else  in  what  it 
passes  for  or  fetches.  The  example  will  be  better  under 
stood  when  we  come  to  the  chapter  on  Money. 

6.  Tn  the  next  place,  our  nomenclature  helps  us  more 
readily  to  understand  the  important  distinction  between 
Value  and  Price.  It  is  very  interesting  to  notice  in  the 
passage  from  the  Roman  Law  quoted  in  our  first  chapter, 
that  tire  point  involved  in  this  distinction,  was  a  matter  of 
discussion  among  the  Romans  at  a  very  early  time.  Two 
views  were  maintained  in  that  discussion.  The  question 
was,  whether  the  buying  and  selling  of  goods  was  anywise 
different  from  the  exchanging  of  goods,  —  “for  example, 
whether  a  man,  or  a  piece  of  land,  or  a  garment,  can  be  the 
value  of  another  thing.  Sabinus  and  Cassius  think  value 
can  dwell  in  another  thing  too ;  whence  is  that  which  was 
commonly  said,  —  buying  and  selling  is  carried  on  in  the 
exchange  of  goods,  —  and  that  view  of  purchase  and  sale  is 
very  old.”  For  this  last  statement  we  ought  to  be  thankful, 
for  it  is  probably  the  only  proof  in  existence,  that  the 
Romans  occupied  their  minds  with  this  innermost  question 
of  Political  Economy.  Sabinus  and  Cassius  were  substan¬ 
tially  right,  as  we  have  seen,  since,  no  matter  what  the 
nature  of  the  two  things  exchanged,  each  expresses  per¬ 
fectly  the  value  of  the  other ;  and  we  shall  see  in  the  chap¬ 
ter  on  Money,  that,  when  goods  are  paid  for  in  money, 
there  is  no  change  in  any  law  of  value,  but  only  a  new  word 
is  used,  namely  Price.  Apparently  on  the  basis  of  this 
slight  difference,  however,  another  view  was  had  at  Rome, 
and  is  even  said  to  have  “  prevailed.”  “Writers  of  a  dif¬ 
ferent  school  took  the  opposite  view,  and  thought  exchange 
of  commodities  was  one  thing,  but  buying  and  selling  another 
thing  ;  furthermore,  they  thought  the  matter  could  not  be 
explained  in  the  case  of  exchanging  commodities  winch 
thing  seems  to  have  been  sold  as  property  and  which  given 
as  the  price,  for  reason  does  not  allow  that  both  things 
appear  to  have  been  sold  and  given  as  the  price  ;  but  the 


150 


POLITICAL  ECONOMY. 


opinion  of  Procullus  has  deservedly  prevailed,  who  says, 
exchange  is  a  particular  kind  of  business  transaction  differ¬ 
ent  from  selling .”  It  is  indeed  different  in  one  little  par¬ 
ticular. 

Both  these  Roman  views  hold  clearly  that  the  value  01 
price  of  any  thing  is  the  other  thing,  whether  goods  or 
money,  exchanged  for  it,  and  thus  justify  the  proverbial 
good  sense  of  the  Romans.  Condillac,  on  the  other  hand, 
perceiving  that  two  estimations  always  precede  an  exchange, 
held  that  value  resides  in  the  minds  of  men.  Because  peo¬ 
ple  give  value  at  one  time  to  things  to  which  at  another  time 
they  do  not,  he  held  that  value  is  founded  on  estimations, 
and  that  value  exists  before  the  exchange  takes  place.  This 
was  in  reaction  from  the  false  view  that  value  is  an  absolute 
quality  inherent  in  things,  independently  of  the  opinion  men 
have  of  them.  But  Condillac  went  too  far  in  the  opposite 
direction.  Minds  do  indeed  have  an  essential  part  to  play 
in  determining  value,  but  if  there  were  no  outward  manifes¬ 
tation  of  these  mental  states,  no  phenomenon ,  no  effect  by 
which  the  estimation  of  the  mind  can  be  measured ,  there 
could  be  no  economic  science,  because  there  would  be  no 
class  of  facts  open  to  observation  and  induction.  Condillac 
makes  this  distinction  between  Value  and  Price:  value, 
being  a  mental  estimation,  is  what  a  man  icould  give  for  any 
thing  if  he  could  not  get  it  for  less ;  price,  the  result  of 
contention,  is  what  he  actually  does  give ;  and,  therefore, 
value  and  price  are  not  always  convertible  terms.  The  true 
distinction  turns  rather  on  whether  the  return  service  be 
money  or  something  else. 

It  is  precisely  because  we  have  in  all  cases  the  return 
service  as  the  outward  expression  and  measure  of  the  desire 
of  him  who  renders  the  service,  and  because  it  makes  no 
difference  which  of  two  services  exchanged  be  regarded  as 
the  return  service,  that  our  science  has  an  objective  char¬ 
acter,  notwithstanding  the  strong  subjective  elements  that 
have  a  part  in  it.  The  science  is  reared  on  the  firm  ground 


VALUE. 


151 


of  objective  realities.  Even  rights  are  objective  realities 
that  can  be  enforced  in  the  courts. 

The  price  of  any  thing,  then,  is  its  purchasing-power  ex¬ 
pressed  in  money  ;  the  value  of  any  thing  is  its  purchasing- 
power  expressed  in  any  other  purchasing-power  whatever. 
Price  is  a  relative  word,  but'  specific ;  value  is  a  relative 
word,  but  general.  When  we  speak  of  the  price  of  a  ser¬ 
vice,  we  mean  the  sum  of  money  which  that  service  will 
buy  ;  but  ’when  we  speak  of  the  value  of  a  service,  we  mean 
the  command  in  exchange  of  that  service  over  other  services 
generally.  Thus,  we  say,  “  This  coat  is  worth  twenty-five 
dollars;”  that  is  its  price.  The  value  of  the  same  coat 
never  could  be  completely  expressed,  because  it  would  re¬ 
quire  a  comparison  not  only  with  hats  and  gloves  and  boots 
and  vests,  but  with  all  other. things  which  are  ever  exposed 
for  sale.  Therefore,  for  convenience’  sake,  value  is  com¬ 
monly  reduced  to  price.  By  knowing  the  price  of  various 
things,  we  readily  compare  their  value  relatively  to  each 
other.  Thus,  when  we  know  the  price  of  the  coat  at  25 
dollars,  and  of  gloves  at  2,  of  hats  at  5,  and  vests  at  10 
dollars,  we  easily  determine  the  value  of  the  coat  as  esti¬ 
mated  in  gloves,  hats,  and  vests,  namely,  that  its  value  as 
compared  with  theirs,  is  respectively  12^,  5,  and  2^  times 
theirs.  The  value  of  any  thing  may  remain  nearly  uniform 
while  its  price  may  greatly  vary.  This  will  always  be  owing 
to  some  great  change  in  the  money  of  the  country.  In  this 
country,  from  the  spring  of  1862  till  the  spring  of  1878,  the 
current  money  was  much  depreciated  as  compared  with  gold, 
the  premium  on  which  over  the  paper  money  varied  at  dif¬ 
ferent  times  from  1  to  185  per  cent.  There  was,  in  conse¬ 
quence,  a  universal  rise  of  prices  reckoned  in  paper  money, 
but  it  may  be  said  in  general  that  values  remained  much  as 
before ;  that  is  to  say,  a  given  number  of  paper  dollars  so- 
called  fell  in  their  power  to  command  general  services,  — 
prices  rose  — while  these  services  continued  to  command 
each  other  in  exchange  much  as  before,  —  values  were  com- 


152 


POLITICAL  ECONOMY. 


paratively  steady.  This  illustration  brings  out  the  privilege 
we  have,  or  rather  the  necessity  we  are  under,  whenever 
special  attention  is  called  to  one  of  two  services  exchanged, 
to  speak  of  its  value  as  liable  to  vary,  meaning  its  purchas¬ 
ing-power  over  other  services.  Value  is  always  a  consum¬ 
mated  relation;  but  there  is  no  harm,  rather  there  is  a 
necessity,  in  conceiving  and  speaking  of  one  service  as  rising 
or  falling  in  value  at  different  times,  according  as  it  com¬ 
mands  more  or  less  of  other  services.  As  before  remarked, 
this  is  a  concession  to  language,  and  not  a  departure  from 
the  exactness  of  science. 

Moreover,  it  is  not  possible  that  there  should  be  any  gen¬ 
eral  rise  or  fall  of  values,  as  there  may  be  a  general  rise  or 
fall  of  prices.  A  rise  in  the  value  of  any  thing  implies  a 
fall  in  the  value  of  those  things  with  which  you  compare  it, 
that  is  to  say,  if  it  will  buy  more  of  them,  they  will  buy  less 
of  it.  Its  rise  in  value  implies  their  fall  in  value,  and  con¬ 
versely.  Every  rise  in  value  of  any  service  involves  a  cor¬ 
responding  fall  in  other  services ;  and  every  fall  in  value 
of  any  service  involves  a  rise  in  value  of  other  services ; 
and  therefore,  a  general  rise  or  fall  of  values  is  impossible. 
Nothing  is  more  common  than  a  rise  or  fall  of  value  in  par¬ 
ticular  services.  Suppose,  for  instance,  an  improvement  in 
machinery  by  which  broadcloth  can  be  made  with  one-half 
the  former  effort,  and  that  no  change  has  been  made  in  the 
efforts  requisite  to  make  the  gloves,  hats,  and  vests  of  our 
former  example,  and  no  change  in  the  views  of  those  who 
wish  to  exchange  them.  The  coat  will  sink  at  once  to  about 
half  its  former  value,  not  only  in  relation  to  gloves,  hats, 
and  vests,  but  in  relation  to  every  thing  which  does  not  hap¬ 
pen  to  be  affected  by  a  similar  depressing  cause.  It  is 
correct  to  say  that  the  value  of  the  coat  has  fallen.  As 
estimated  in  gloves,  hats,  and  vests,  its  value  now  is  only 
GJ,  2J,  and  1|  times  theirs,  respectively.  But  while  coats 
have  fallen  in  relation  to  the  other  commodities,  the  other 
commodities  have  risen  in  relation  to  coats;  and  if  similar 


VALUE. 


153 


improvements  should  be  made  in  the  machinery  by  which 
gloves,  hats,  and  vests  are  made,  so  that  one-half  less  effort 
will  bring  these  also  to  market,  views  of  parties  as  before 
remaining  unchanged,  they  will  exchange  now  for  coats 
exactly  in  the  same  ratios  as  at  first,  namely,  12^,  5,  and 
2£,  respectively,  for  1.  As  soon  as  the  improvements  affect 
all  the  commodities  equally,  value  stands  just  as  it  did  be¬ 
fore  the  first  improvement  was  made.  Views  of  the  parties 
remaining  the  same,  it  is  only  an  advantage  or  disadvantage 
affecting  some  services  and  not  others,  that  will  vary  their 
value  in  exchange  :  whatever  affects  them  all  equally  will 
have  no  effect  upon  value.  Thus,  a  universal  rise  of  wages 
in  any  country,  provided  it  could  and  did  affect  all  depart¬ 
ments  of  effort  in  the  same  relative  degree,  w^ould  not  have 
the  least  effect  upon  other  values  ;  and  we  have  just  seen 
that  a  general  rise  of  prices  lately  experienced  in  this  coun¬ 
try  had  little  effect  upon  the  general  purchasing-power  of 
services  other  than  money,  but  was  only  a  token  that  the 
one  service,  money,  had  fallen  relatively  to  them. 

7.  In  the  next  place,  our  definition  of  Value  makes  it 
needful  to  inquire  and  comparatively  easy  to  find  out  wheth¬ 
er  there  is,  or  can  be,  any  invariable  measure  of  services,  or, 
as  it  has  been  commonly  called,  measure  of  value.  A  full 
discussion  of  this  point  can  best  be  had  in  the  coming  chap¬ 
ter  on  Money,  but  it  is  in  order  here  to  ask  whether  there 
is  any  standard  or  measure,  by  a  comparison  with  which 
we  may  determine  the  general  purchasing-power  of  different 
services.  It  has  commonly  been  supposed  that  there  is  such 
a  measure,  and  political  economists  have  expended  a  great 
deal  of  strength  in  endeavoring  to  discover  wThat  it  is.  The 
results  have  hardly  been  commensurate  with  the  zeal  and 
patience  of  the  search.  Adam  Smith  seems  at  one  time  to 
regard  labor  as  the  best  measure  of  value,  that  is,  the  quan¬ 
tity  of  labor  which  any  commodity  will  buy  as  the  best 
gauge  of  its  power  to  buy  commodities  in  general.  At 
another  time  he  seems  to  think  that  corn  is  a  better  measure 


154 


POLITICAL  ECONOMY. 


of  general  exchange  value  than  labor.  Others  have  thought 
that  price  furnished  the  best  attainable  standard  of  com¬ 
parison  ;  in  other  words,  that  the  quantity  of  gold  or  silver 
which  any  thing  will  purchase,  will  best  enable  us  to  deter 
mine  the  quantity  of  all  other  things  which  it  will  purchase. 
Others  still  have  supposed  that  the  cost  of  production  of  an}’ 
commodity  would  give  the  most  accurate  rule  by  which  to 
decide  the  value  of  the  commodity ;  and  still  others,  as  Mr. 
Carey,  have  suggested  the  cost  of  reproduction.  But  the 
truth  is,  a  measure  of  value  in  the  sense  in  which  it  has  been 
sought  after  by  these  writers,  is  something  impossible  to  be 
realized.  It  never  would  have  been  sought  after,  unless 
value  had  been  supposed  to  be  a  rigid  quality  inhering  in 
commodities,  and,  when  once  placed  in  them  by  whatever 
process,  to  be  invariable.  We  have  seen,  however,  that 
value  is  not  a  quality  inhering  in  any  one  thing,  but  is  a 
relation  subsisting  between  two  services  which  two  persons 
are  in  a  position  to  render  to  each  other ;  and  that  this  is 
not  an  inflexible  relation,  but  is  variable  by  any  change  in 
the  views  of  the  two  persons,  by  which  either  of  them  puts 
a  different  estimate  upon  the  service  about  to  be  rendered  as 
compared  with  the  service  about  to  be  received.  We  have 
seen  sufficiently  already,  that  there  are  four  things,  and  only 
four,  any  change  in  any  one  of  which  will  vary  value ;  and 
that  these  four  things  are  two  desires  and  two  efforts,  the 
two  desires  belonging  to  two  persons,  and  the  efforts  made 
by  two  persons  each  for  the  other.  Now  these  four  ele¬ 
ments  are  in  their  very  nature  so  liable  to  vary,  and  as  a 
matter  of  fact  do  so  constantly  vary,  that  no  man  who 
clearly  perceives  what  value  is,  will  waste  time  and  ingenu¬ 
ity  in  searching  for  an  invariable  standard  of  that  which  in 
its  nature  is  variable  and  relative. 

While  no  invariable  measure  of  value  is  possible  to  be 
found,  there  are  certain  limitations  and  principles  of  much 
importance  which  ought  to  be  given  in  this  connection. 
Although  labor  alone,  as  we  have  seen,  cannot  be  regarded 


VALUE. 


155 


as  the  cause  of  value,  for,  if  it  were  asserted  to  be  such, 
the  inquiry  would  be  pertinent,  what  is  the  cause  of  the 
value  of  labor ;  yet,  value  always  stands  in  connection  with 
human  efforts,  and,  the  mutual  desires  being  presupposed, 
there  are  always  limitations  of  value  lying  partly  in  the 
effort  made  by  the  person  serving  and  partly  in  the  effort 
saved  to  the  person  served.  In  every  exchange,  each  of  the 
parties  is  reciprocally  serving  and  served,  and  it  is  clear  that 
they  would  not  exchange  unless  the  service  which  each  ren¬ 
ders  to  the  other  is  less  onerous  than  the  effort  which  each 
would  have  to  make  if  each  served  himself  directly.  It 
oosts  a  certain  effort  for  me  to  bring  water  from  the  spring ; 
I  am  willing  to  pay  a  neighbor  for  bringing  it  for  me,  but  I 
should  not  be  willing  to  make  a  greater  effort  for  him  in 
return  than  the  effort  is  to  bring  it  myself ;  neither  should 
I  be  willing  to  make  an  effort  for  him  which  I  regarded  just 
as  onerous  as  the  bringing  the  water :  unless  there  is  some 
service  which  he  will  accept  less  onerous  to  me  than  that, 
I  shall  continue  to  bring  the  water  for  n^self.  On  the 
other  hand,  he  will  not  render  the  service  to  me  of  bringing 
the  water,  unless  it  be  less  onerous  to  him  than  the  doing 
that  for  himself  which  I  am  ready  to  do  for  him. 

This  principle,  applicable  to  all  exchanges  whatsoever, 
draws  on  the  one  side  the  outermost  line,  beyond  which 
value  never  can  pass.  It  may  be  asserted  with  confidence 
that  no  man  will  ever  knowingly  make  a  greater  effort  to 
satisfy  a  desire  through  exchange,  than  the  effort  needful 
to  satisfy  it  without  an  exchange.  Moreover,  within  this 
outermost  limitation  which  is  made  by  the  comparative  oner¬ 
ousness  of  the  respective  efforts,  there  is  a  second  limitation 
of  a  similar  kind.  To  pursue  the  same  illustration,  while 
I  should  never  make  an  effort  for  another  in  return  for  his 
bringing  the  water,  greater  than  that  required  to  bring  it 
myself,  the  return  effort  may  be  very  much  less  than  that 
effort,  and  may  sink  down  to  a  point,  below  which  I  can  get 
no  one  to  bring  the  water  f->r  me.  Suppose  I  estimate  the 


156 


POLITICAL  ECONOMY. 


effort  required  to  bring  the  water  myself  as  10  ;  and  that 
there  are  several  persons  who  would  be  glad  to  do  that  ser¬ 
vice  for  me  for  a  return  service  which  I  estimate  as  8  ;  and 
that  there  are  two  persons  who  are  willing  to  do  it  for  some¬ 
thing  which  I  estimate  as  6  ;  and  that  there  is  only  one  per¬ 
son  who  will  do  it  for  a  return  service  which  I  regard  as  5. 
It  is  evident  that  the  extreme  limits  of  the  value  of  that 
service  to  me  are  10  and  5.  Higher  than  10  it  cannot  go, 
lower  than  5  it  cannot  sink.  I  should  render  the  service 
estimated  as  8,  rather  than  forego  having  the  water  brought 
for  me  ;  but  I  shall  render  the  service  estimated  as  5,  just  as 
long  as  there  is  any  one  person  who  will  make  the  exchange 
with  me  on  those  terms.  If  he  declines  the  exchange,  I  fall 
back  on  one  of  the  two  persons  in  the  class  above  him,  and 
value  rises  now  from  5  to  6.  It  will  be  steadier  at  G  than  it 
was  at  5,  because  there  are  two  persons  ready  to  render  the 
service  at  that  rate.  If  each,  however,  in  turn  should  give 
out,  I  should  then  be  obliged  to  fall  back  upon  the  larger 
class  ready  to  serve  me  for  a  return  service  of  8.  At  this 
point  the  value  would  be  very  steady  from  the  presence  of 
numerous  competitors  anxious  to  serve  me  at  that  rate,  and 
it  could  by  no  possibility  rise  above  10.  Between  10  and  5 
the  value  may  fluctuate,  but  it  cannot  overpass  these  limits 
in  either  direction.  Therefore  we  may  say  that  the  maxi¬ 
mum  value  of  any  service  in  exchange  is  struck  at  the  point 
where  the  recipient  will  prefer  to  serve  himself,  rather  than 
make  the  exchange  ;  and  the  minimum  value  of  any  service  in 
exchange  is  struck  at  the  point  below  which  the  recipient  can¬ 
not  get  himself  served.  These  two  limits,  it  will  be  observed, 
are  found  in  the  two  elements  which  we  have  called  efforts. 

But  there  are  also  limitations  of  value  in  the  two  elements 
which  we  have  called  desires.  In  the  foregoing  illustration, 
it  is  supposed  that  my  desire  for  the  water  is  all  the  while 
of  uniform  strength,  and  the  desire  of  each  of  the  three 
classes  willing  to  serve  me  for  the  return  service  is  uniform 
also,  though  each  class  makes  a  different  estimate  of  the 


VALUE. 


157 


comparative  efforts.  Let  us  now  suppose  that  the  efforts 
on  either  side  remain  invariable,  but  there  is  a  change  in  the 
element  of  desire.  Any  capacity  in  any  thing  to  gratify 
an}T  desire  of  anybody  is  utility.  For  simplicity’s  sake,  let 
us  look  only  to  the  one  man  who  was  ready  to  bring  the 
water  for  a  return  service  which  I  estimated  as  5,  and  sup¬ 
pose  that  he  is  the  only  man  who  will  do  me  the  service  on 
any  terms.  Let  now  the  utility  of  the  water  to  me  be  in¬ 
creased,  and  let  him  know  that  fact,  all  other  elements 
remaining  as  before,  and  he  can  crowd  up  the  value  of  his 
service  towards  10,  according  to  the  intensity  of  my  desire. 
Of  course  he  cannot  crowd  it  over  10,  but  the  limit  below 
that  will  now  be  determined  by  the  relative  strength  of  my 
desire.  On  the  other  hand,  if  my  desire  be  as  before,  and 
the  two  efforts  as  before,  and  his  desire  for  my  return  ser¬ 
vice  be  increased,  and  I  know  it,  and  I  the  only  man  who 
can  render  him  such  a  service,  I  can  crowd  down  the  value 
of  his  service  below  5,  according  to  the  intensity  of  his 
desire.  Of  course  I  cannot  crowd  it  down  below  a  point, 
which  we  will  call  3,  at  which,  rather  than  continue  his  ser¬ 
vice  at  that  rate,  he  will  forego  the  exchange  altogether. 
But  value  may  vary  between  these  limits,  10  and  3,  accord¬ 
ing  to  the  varying  intensity  of  our  mutual  desires.  If  it 
should  so  happen  that  both  these  desires,  my  desire  for  his 
service  and  his  desire  for  mine,  should  increase  simultane¬ 
ously  and  proportionably,  value  would  not  be  affected ;  the 
exchange  would  go  on  at  the  same  rate  as  before.  Or  if 
both  desires  should  diminish  simultaneously  and  proportion¬ 
ably,  value  would  not  be  affected.  The  same  is  true  of 
efforts.  If  both  efforts  suddenly  become  twice  as  onerous, 
or  one-half  as  onerous  as  before,  the  desires  remaining  the 
same,  the  value  of  the  two  services  estimated  in  each  other 
would  stand  just  as  before.  Thus  we  see  that  the  natural 
limits  of  value,  and  all  the  variations  in  value,  are  to  be 
sought  for  and  will  be  found  in  the  play  and  interaction  of 
the  four  elements  out  of  which  value  itself  springs. 


158 


POLITICAL  ECONOMY. 


8.  In  the  last  place,  our  definitions  and  explanations  thus 
far  will  enable  us  to  understand  clearly  what  is  the  one 
universal  Law  of  Value,  —  a  law  applicable  alike  to  all  three 
classes  of  exchangeable  things,  and  comprehending  per¬ 
fectly  all  variations  in  all  values.  This  is  termed  the  Law 
of  Demand  and  Supply.  Demand  is  the  Desire  of  purchas¬ 
ing  something  coupled  with  the  Power  of  purchasing  it.  In 
other  words,  demand  is  the  desire  of  one  person  for  some¬ 
thing  from  the  hands  of  another,  who  also  desires  something 
from  the  hands  of  the  first,  when  both  are  willing  to  part 
with  what  they  now  have  from  that  motive.  Supply  is  any 
exchangeable  thing  offered  for  sale  against  any  other  exchange¬ 
able  thing.  These  definitions  are  stated  in  the  most  general 
terms. 

Now,  as  Value  is  always  a  resultant  of  four  elements,  and 
only  four,  all  changes  in  value  must  be  due  to  change  in 
one  or  more  of  these  elements  relatively  to  the  others  ;  and 
the  universal  Law,  which  shall  account  for  the  existence  of 
value,  and  for  its  amount  at  both  extremes  and  at  all  inter¬ 
mediate  points,  must  be  found  in  just  these  elements.  These 
elements  are  expressed  in  the  terms  Demand  and  Supply. 
Market- Value  is  the  rate  at  which  services  of  all  sorts  are 
exchanging  at  the  present  time  in  the  various  departments 
of  society.  What  determines  that  rate  ?  What  determines 
that  corn  is  now  selling  in  the  market  for  one  dollar  a  bushel? 
Two  desires  come  in  to  determine  it, — the  desire  of  people 
for  corn,  and  the  desire  of  farmers  for  money.  Two  efforts 
come  in  to  determine  it,  —  the  effort  of  farmers  to  raise  and 
bring  a  bushel  of  corn  to  market,  and  the  effort  of  people 
to  secure  one  dollar  in  mone}\  The  presence  of  corn  in  the 
market,  or  its  being  ready  to  be  immediately  brought  there 
and  offered  in  exchange  for  money,  constitutes  what  is  called 
a  Supply  of  corn ;  money  offered,  or  ready  to  be  offered, 
in  exchange  for  corn,  constitutes  what  is  called  a  Demand. 
This  is  commercial  language,  and  is  sufficiently  accurate, 
although  it  must  be  remembered  that  each  commodity  in 


VALUE. 


159 


reality  constitutes  a  Demand  for  the  other,  and  is  a  Supply 
in  reference  to  the  other.  But,  speaking  commercially,  the 
money  ready  to  be  offered  for  commodities  is  the  Demand, 
and  the  commodities  ready  to  be  exchanged  for  money  are 
the  Supply. 

What,  then,  is  the  law  of  market- value  ?  The  law  of 
market-value  is  the  equation  of  supply  and  demand :  that 
is  to  say,  the  rate  of  the  exchange  is  adjusted  when  money 
enougrh  is  offered  to  take  off  within  the  usual  times  the  com- 

o 

modifies  on  hand.  Demand  and  supply  are  thus  equalized, 
and  the  current  market-rate  is  determined.  If  demand  for 
any  reason  becomes  quickened,  and  the  supply  not  increased, 
there  is  competition  among  bu}rers  for  the  stock  in  market, 
and  market-value  tends  to  rise.  If  demand  becomes  slim- 

o 

gish,  the  supply  remaining  the  same,  there  is  competition 
among  sellers  to  dispose  of  their  stock,  and  market- value 
tends  to  sink.  So  far  it  is  the  action  on  value  of  the  element 
of  desire,  which  expresses  itself  through  demand.  How  far 
can  this  action  go?  Demand  being  increased,  supply  remain¬ 
ing  the  same,  value  rises  :  how  far  does  it  rise  ?  That  depends 
upon  circumstances,  and  upon  the  nature  of  the  commodity. 
We  must  remember  that  demand  not  only  acts  upon  value, 
but  value  acts  upon  demand.  As  value  rises,  the  number  of 
those  whose  means  or  inclinations  enable  them  to  purchase 
at  the  new  rate  is  constantly  diminished.  There  are  ten 
persons  who  may  wish  an  article  at  one  dollar,  of  whom  not 
over  four  will  wish  it  at  two  dollars,  and  perhaps  only  one 
at  three  dollars.  Every  rise  in  value  then,  under  the  influ¬ 
ence  of  increased  demand,  tends  to  cut  off  a  part  of  that 
demand,  that  is,  to  lessen  the  number  of  those  who  will 
purchase  at  the  increased  price  ;  and  the  value  will  rise  only 
to  that  point,  whatever  it  be,  where  an  equalization  takes 
place  between  the  supply  and  demand,  between  the  cuantity 
of  corn,  for  example,  offered  at  the  enhanced  rates,  and  the 
quantity  of  money  in  the  hands  ot  those  willing  to  exchange 
it  for  corn  at  the  enhanced  rates.  Thus  we  see  that  every 


160 


POLITICAL  ECONOMY. 


rise  or  fall  of  demand,  and  the  consequent  rise  or  fall  of 
value,  tends  to  check  itself.  An  increased  demand  for  any 
article  or  service,  other  things  being  equal,  enhances  its 
value ;  but  the  enhanced  value  in  turn  lessens  the  demand 
by  lessening  the  number  of  those  who  will  purchase,  and 
the  new  market-rate  is  struck  at  the  point  of  equalization 
between  the  old  supply  and  the  new  demand.  Just  so,  if 
demand  is  slackened,  value  declines  ;  but  declining  value 
in  turn  increases  the  demand  by  bringing  the  article  within 
the  range  of  a  larger  number  of  purchasers,  and  the  decline 
is  arrested  at  the  point  of  equalization  between  the  new 
demand  and  the  old  supply,  and  a  new  market-rate  is  deter¬ 
mined.  Every  thing  oscillates  under  the  variations  of  de¬ 
maud,  but  the  point  of  stable  equilibrium,  if  we  may  use  the 
expression  of  any  thing  so  unstable  as  market- value,  the 
point  of  stable  equilibrium  is  always  the  equation  of  supply 
and  demand. 

In  the  preceding  paragraph  we  have  supposed  supply 
to  remain  unchanged,  and  have  followed  the  law  of  value 
through  the  variations  of  demand,  which,  money  being  inva¬ 
riable,  as  is  here  supposed,  expresses  the  element  of  desire. 
Supply  expresses  the  element  of  efforts,  and  market- value 
varies  with  the  variations  of  supply.  We  have  seen  that 
every  rise  or  fall  of  demand  tends  to  check  itself,  and  will 
check  itself  even  without  variations  in  the  supply  ;  but  it  is 
commonly  checked  at  an  earlier  point  by  variations  in  the 
supply.  A  brisk  demand  enhances  value,  and  enhanced 
value  commonly  stimulates  supply,  and  increased  supply 
checks  the  rise.  A  slack  demand  lowers  value,  and  lowered 
value  commonly  lessens  the  supply  by  the  action  of  holders 
and  speculators,  —  holders  withdrawing  their  stock  for  a 
better  market,  and  speculators  buying  now  when  the  article 
is  cheap,  to  store  away  till  it  shall  be  dearer.  Thus  rise  of 
value  from  increased  demand  is  doubly  checked ;  first,  by 
restricting  the  number  of  purchasers,  and  second,  by  increas¬ 
ing  the  supply  :  the  fall  of  value  from  slack  demand  is  doubly 


VALUE. 


161 


checked ;  first,  by  enlarging  the  number  of  consumers  of  a 
now  cheaper  article,  and  second,  by  diminution  of  supply 
by  the  action  of  holders  and  speculators.  This  law  of  the 
equalization  of  demand  and  supply,  thus  doubly  and  harmo¬ 
niously  working,  is  the  most  comprehensive  and  beautiful 
law  in  political  economy.  It  is  all-comprehensive.  Its 
operation  in  the  field  of  personal  services  and  in  the  field 
of  commercial  claims,  though  perhaps  less  obvious  at  first, 
is  equally  certain  and  universal  as  its  operation  in  the  field 
of  material  commodities. 

But  we  must  note  the  action  on  value  of  changes  in  supply 
only,  demand  continuing  steady.  If  the  supply  be  short, 
and  cannot  be  increased  at  all,  as  is  the  case  with  choice 
antiques  and  certain  gems  and  paintings  by  the  old  masters, 
value  may  rise  to  any  point,  and  will  be  struck,  as  before, 
at  the  precise  point  of  equality  of  the  demand  then  exist¬ 
ing  with  the  supply  there  offered.  The  French  Government 
paid,  in  1852,  615,300  francs  for  a  painting  by  Murillo, 
which  had  belonged  to  Marshal  Soult.  The  genuine  Murillos 
are  comparatively  few,  and  their  number  cannot  be  increased, 
and  their  merit  causes  a  strong  desire  to  possess  them,  and 
their  value  rises  in  consequence  of  the  limitation  of  supply 
to  a  point  beyond  which  no  one  purchaser  can  be  found. 
When  this  painting  was  offered  in  Paris  for  sale,  many 
parties  were  anxious  to  purchase  it,  but  the  equation  of 
demand  and  supply  was  reached,  and  its  value  was  deter¬ 
mined  only  when  one  party  distanced  all  other  competitors 
and  offered  a  sum  greater  than  any  one  else  would  give. 
There  was  one  painting  ;  there  could  be  but  one  purchaser ; 
value  rose  under  the  influence  of  demand,  and  could  not  be 
checked  by  increase  of  supply ;  and  the  equation  was  com¬ 
plete  when  the  demand  was  practically  restricted  to  one 
party,  and  that  the  highest  bidder.  The  same  principle 
controls  all  sales  of  this  sort. 

If  the  supply,  instead  of  being  absolutely  limited,  can 
only  be  increased  with  difficulty  or  after  the  lapse  of  time, 


1(32 


POLITICAL  ECONOMY. 


similar  but  less  extreme  results  will  be  obsened.  Suppose 
pianos  are  selling  in  any  community  at  $300  each,  and  there 
are  twenty  persons  in  that  community  who  wish  a  piano 
immediately,  and  that  there  are  but  fifteen  pianos  on  hand, 
and  the  number  cannot  be  increased  for  six  months.  The 
value  will  rise  above  $300.  How  much  above?  To  that 
point,  whatever  it  be,  at  which  only  fifteen  of  the  twenty 
will  1  ie  willing  to  purchase  at  the  new  rate.  The  equatic  n 
of  supply  and  demand  will  be  reached  by  a  rising  value  which 
cuts  off  five  competitors.  This  is  the  principle,  working  only 
roughly  indeed  in  practice,  —  working  only  by  the  estimates 
and  good  judgment  of  dealers, — but  the  principle  is  this. 
A  better  illustration  of  this  class  of  cases  is,  perhaps,  the 
grains  and  other  products  of  the  earth.  When  these  have 
been  gathered  there  is  no  more  home  supply  for  a  year. 
An}’  deficiency  in  the  crops  will  raise  their  value,  not  at  all 
in  the  ratio  of  the  deficiency,  but  according  to  the  relations 
of  the  diminished  supply  to  a  new  demand.  Since  the  aboli¬ 
tion  of  the  corn-laws  in  England  in  1849,  and  the  consequent 
facility  of  importation,  an  estimated  deficiency  of  home 
crops  has  no  such  effect  on  the  prices  of  grain  as  it  had 
before  that  time  ;  when,  according  to  Tooke’s  History  of 
Prices,  an  expected  falling  off  of  one-third  in  the  crop  often 
doubled  and  sometimes  quadrupled  the  usual  prices  ;  which 
shows  that  the  world  ought  to  be  one  in  respect  to  all  food 
supplies,  each  country  allowing  them  to  be  distributed  freely 
everywhere  in  accordance  wfith  this  law  of  Demand  and  Sup¬ 
ply.  Speculation  is  more  busy  in  grain,  in  cotton,  and  in  such 
things  generally,  because  a  new  supply  can  only  be  had  once 
a  year  ;  early  information  is  eagerly  sought  at  the  trade  centres 
in  regard  to  the  prospects  of  the  growing  crops,  and  has  its  in¬ 
fluence  one  way  or  the  other  on  current  prices  ;  but  the  world 
is  so  wide,  and  the  parts  of  it  now  so  closely  connected  to¬ 
gether  by  steamship  and  telegraph,  that  the  prices  of  the  great 
staples  are  remarkably  uniform  over  the  earth,  and  specula¬ 
tion  has  not  the  chance  it  once  had  to  count  and  “  corner.” 


VALUE. 


1G3 


Iu  the  only  remaining  and  far  more  numerous  class  of 
cases,  in  which  the  supply  of  commodities  and  services  and 
claims  can  be  readily  and  indefinitely  increased,  each  rise 
and  fall  of  value  tends  to  be  speedily  checked  through  the 
action  of  Supply ;  and  the  harmoniously- working  law  but 
just  now  referred  to  keeps  value  in  this  class  of  cases  com¬ 
parative^7  steady. 

The  general  theory  of  value  has  now  been  given.  In  the 
light  of  it,  we  may  see  how  wide  of  the  mark  are  they,  who 
regard  the  study  of  values  as  materialistic  in  contrast  with 
what  is  personal  and  spiritual.  Political  Economy  does 
indeed  make  the  same  distinction  as  the  Roman  Law  does 
between  a  Person  and  a  Thing ;  but  it  exalts  the  person  as 
over  against  the  thing ,  and  finds  its  only  interest  in  things 
as  they  stand  related  to  persons.  It  adopts,  in  short,  the 
definition  of  man  as  “  an  animal  that  exchanges.”  It  is 
able  to  prove  that  exchanges  are  beneficial  to  men’s  physical, 
mental,  and  spiritual  natures ;  and  is  consequently  averse  to 
any  thing  that  stunts  the  growth  of  men  to  their  full  stature 
as  exchangers.  It  would  guard  the  rights,  preserve  the 
morals,  and  exalt  the  dignity,  of  men,  in  order  that  they 
may  both  render  and  receive  the  full  benefits  of  all  possible 
exchanges.  While  we  shall  find  no  case  of  value,  or  its 
variations,  which  our  general  theory  does  not  cover  and 
explain,  we  shall  still  find  important  principles  which  act  in 
particular  cases  on  Demand  and  Supply,  and  thereby  must 
act  upon  Value.  We  have,  then,  now  seen  what  Value 
really  is ;  how  it  practically  arises ;  the  elements  which 
alone  can  vary  it ;  and  the  universal  Law  which  limits 
it. 

The  following  propositions  gather  up  the  substance  of  the 
present  chapter :  — 

1.  Value  is  always  an  expressed  result;  and  is  one  of  the 
chief  realities  with  which  men  have  to  deal. 

2.  A  peculiar  kind  of  comparison ,  and  an  actual  exchange , 
constitute  Value. 


164 


POLITICAL  ECONOMY. 


3.  Two  persons ,  two  things ,  two  desires ,  £wo  efforts ,  £wo 
estimates ,  cmc£  two  satisfactions ,  /orm  the  circle  of  Value. 

4.  It  is  the  relation  of  mutual  purchase  established  between 
two  services  by  their  exchange. 

5.  There  are  three  kinds  of  exchangeable  things ,  and 
six  possible  cases  of  exchange. 

6.  The  word  Services  unfolds  best  the  inmost  nature  of 
Value.  Service  for  Service  is  the  universal  formula. 

7.  Value  is  no  attribute  of  matter ,  and  must  not  be  con- 
founded  with  Utility. 

8.  Price  is  only  a  special  form  of  Value. 

9.  There  are  limitations  of  Value ,  but  no  strict  measures 
of  it. 

10.  The  Law  of  Value  is  found  in  the  billowy  play  of 
Supply  and  Demand . 


PRODUCTION. 


165 


CHAPTER  IV. 

PRODUCTION. 

Value  is  the  sole  subject  of  our  science;  and  we  have 
just  seen  at  great  length  and  through  every  variety  of  illus¬ 
tration,  that,  while  value  always  takes  its  rise  in  the  desires 
of  men,  it  is  never  realized  except  through  the  efforts  of  men, 
and  through  these  efforts  as  mutually  exchanged.  In  othei 
words,  value  is  always  an  accomplished  Result  ;  but  then, 
all  the  processes  that  directly  lead  up  to  this  result  are  a  part 
of  the  science,  and  are  called  Production,  which  is  the  sub¬ 
ject  of  the  present  chapter.  While  it  is  impossible  to  make 
discussions  in  Political  Economy  amusing,  it  is  also  impossi¬ 
ble  intelligently  to  conduct  them  without  coming  constantly 
to  conclusions  that  are  cheering.  We  shall  find  several  law's 
underlying  the  processes  of  Production,  that  show  clearly 
that  men  were  designed  to  be  producers,  and  to  produce 
under  conditions  of  constant^  increasing  advantage.  The 
world  with  its  forces,  and  man  with  his  motives,  are  so 
admirably  constructed,  that  these  conditions  of  increasing 
advantage  cannot  fail,  under  freedom,  to  redound  to  the 
benefit  of  the  masses  of  men.  Economics,  like  Christianity, 
lift  the  masses.  We  will  first  determine  the  meaning  of  our 
scientific  terms,  and  then  pass  to  some  of  the  facts  and  laws 
of  Production. 

Every  man  who  puts  forth  an  effort  to  satisfy  the  desire 
of  another,  with  the  expectation  of  a  return,  is,  in  the  lan¬ 
guage  of  Political  Economy,  a  Producer.  The  Latin  word 
producer e  means  to  expose  any  thing  to  sale.  Our  derived 
word  to  produce  means  the  same.  The  Latin  poet  Terence 


166 


POLITICAL  ECONOMY. 


uses  the  expression,  u  producere  servos,”  to  offer  slaves  for 
sale.  He  did  not  mean  to  say  that  the  person  of  whom  he  was 
speaking  brought  the  slaves  into  being  or  transformed  them 
in  any  way,  but  only  brought  them  out  to  sell.  We  must 
rid  ourselves  at  the  outset  of  the  notion,  accordingly,  that  is 
apt  to  linger  about  this  word,  namely,  that  it  is  only  to  be 
applied  to  forms  of  matter ,  that  it  means  to  make  something, 
or  to  grow  something,  or  at  least  to  transform  something, 
only.  In  common  language,  the  growth  of  the  farm  is  called 
Produce ,  but  only  when  it  is  offered  for  sale,  in  which  sense 
we  speak  of  the  produce-market.  The  fundamental  meaning 
of  the  root-word  both  in  Latin  and  English,  is  effort  with 
reference  to  a  sale ,  and  this  is  the  exact  scientific  sense  in 
which  we  propose  to  use  the  word  and  its  derivatives.  A 
product  is  a  service  ready  to  be  rendered.  A  producer  is  any 
person  who  gets  something  ready  to  sell  and  sells  it ,  whether 
that  thing  be  a  commodity,  a  service,  or  a  claim.  Political 
Economy  is  interested  in  all  classes  of  producers  alike,  and 
demands  a  fair  field  for  every  person  who  has  any  thing  to 
sell  which  is  in  demand  on  the  part  of  others,  provided  first, 
that  he  do  not  cry  his  wares  offensively  in  any  way  or  in¬ 
fringe  the  right  of  anybody  else  to  his  own  time  and  quiet, 
and  provided  second,  that  his  solicitation  and  sale  do  not 
interfere  with  the  public  health,  morals,  or  revenue.  Pro¬ 
duction  is  blessed  ;  but  let  no  producer  trifle  with  the  inter¬ 
ests  of  his  fellow-men  that  are  higher  than  his  or  their 
individual  gain.  Even  Science,  while  claiming  all  its  own 
field,  may  deprecate  infringements  in  its  name  upon  neigh¬ 
boring  fields :  — 

“ Speed  on  the  ship!  —  But  let  her  bear 
No  merchandise  of  sin, 

No  groaning  cargo  of  despair 
Her  roomy  hold  within. 

No  Lethean  drug  for  Eastern  lands, 

No  poison-drauglit  for  ours: 

But  honest  fruits  of  toiling  hands, 

And  Nature’s  sun  and  showers.” 


PRODUCTION. 


1G7 


These  lines  of  Whittier  touch  also  incidentally  upon  the 
three  requisites  of  Production.  These  are,  first,  Natural 
agents,  including  not  onty  “  nature’s  sun  and  showers,”  but 
all  the  forces  and  fertilities  and  agencies  of  free  nature,  that 
men  may  avail  themselves  of  in  preparing  services  to  ex¬ 
change  with  other  men;  second,  Labor,  —  “the  toiling 
hands,”  the  inventive  brains,  the  eloquent  tongues,  and  the 
skilful  manipulations  of  every  name ;  and  third,  Capital, 
of  which  the  poet’s  “  ship  ”  is  an  instance,  —  the  results  of 
previous  toil  reserved  to  help  on  some  future  sales.  These 
three  conspire  in  all  production,  and  especially  in  all  pro¬ 
duction  of  material  things.  Nature  comes  first  with  her 
gifts  ;  present  toil  aided  by  the  results  of  past  toil  does  all 
the  rest  in  production.  Natural  agents  assist  and  sustain 
the  processes,  but  the}'  are  not  of  equal  rank  in  production 
with  man  and  his  efforts. 

Production  is  always  Effort,  but  it  is  not  every  kind  of 
effort  that  is  production.  One  of  my  boys  is  now  playing 
the  piano  in  the  parlor;  it  is  effort  for  him, — irksome 
effort, — but  as  he  has  no  intention  ever  to  sell  his  acquired 
skill  on  that  instrument,  it  cannot  be  called  productive  effort. 
It  is  effort  put  forth  for  altogether  other  than  commercial 
reasons.  The  effort  of  his  music-teacher,  however,  who 
comes  here  to  give  him  his  lessons,  is  productive  effort,  inas¬ 
much  as  it  is  put  forth  solely  with  reference  to  a  sale. 
Efforts  of  all  kinds  that  find  their  purpose  and  end  in  an 
exchange,  are  Production ;  efforts  put  forth  for  amusement, 
for  self-improvement,  for  benevolence,  for  personal  or  family 
gratification,  are  not  Production.  Political  Economy  has 
to  do  with  processes  only  as  these  are  related  to  sales  ;  and 
it  makes  no  difference  what  kind  of  processes  they  are,  if 
they  have  that  design  and  issue. 

Standing  over  against  Production  is  its  correlative  Con¬ 
sumption.  This  word  is  derived  from  the  Latin  consumptio; 
and,  like  that  word  in  Latin,  has  two  meanings  in  English ; 
first,  wasting ,  destroying ,  or  second,  using,  employing.  The 


168 


POLITICAL  ECONOMY . 


second  is  the  sole  economical  sense  of  the  word,  although 
many  writers  have  not  escaped  the  taint  of  the  ambiguity. 
While  many  things  that  are  purchased  are  destroyed  as  to 
form  almost  immediately,  many  other  things  that  are  pur¬ 
chased  are  not  thus  destro}Ted,  while  both  classes  alike  by 
their  sale  are  economically  “consumed.”  Mr.  Senior  pro¬ 
posed  as  an  improvement  in  nomenclature,  the  expression 
“to  use”  instead  of  the  expression  “to  consume.”  But 
the  words  “to  consume,”  “consumer,”  and  “consump¬ 
tion,”  are  too  strongly  intrenched  in  our  science  to  be  dis¬ 
lodged  ;  corresponding  words  in  French  and  Italian,  though 
rather  derived  from  consummare  than  consumer e,  are  used 
economically  and  similarly ;  and  all  that  is  necessary  in  any 
case  is  to  define  and  employ  them  with  exactness.  To  con¬ 
sume  is  to  purchase  any  thing.  The  consumer  is  the  pur¬ 
chaser,  or  customer.  Consumption  is  purchase.  We  have  said 
that  consumption  is  the  correlative  of  production,  but  only 
in  this  sense,  that  each  party  to  an  exchange  is  both  pro¬ 
ducer  and  consumer ;  each  is  producer  as  having  prepared 
himself  to  sell  something,  and  each  is  consumer  as  being 
prepared  to  buy  something.  These  words  are  correlative 
just  as  demand  and  supply  are  correlative.  There  is  no 
production  independent  of  consumption,  and  no  consumption 
independent  of  production ;  and  there  is  no  need,  accord¬ 
ingly,  of  treating  consumption,  as  Wayland  and  Walker 
have  done,  as  a  separate  branch  of  the  subject. 

The  reader  must  now  be  notified  that  this  nomenclature 
is  broader  than  that  which  has  been  hitherto  current.  Adam 
Smith,  and  the  second  school  generally,  confined  “  produc¬ 
tion  ’  ’  to  the  occasioning  of  changes  in  form  or  place  of 
material  objects.  He  gifted  with  the  title  of  “producer” 
the  farmer,  the  mechanic,  the  miner,  the  hunter,  the  fisher¬ 
man,  and  the  transporter,  because  they  bring  to  the  market 
a  material  commodity  ;  and  refused  the  honor  of  the  term  to 
those  who  render  simple  services,  or  claims  to  a  future  ren¬ 
dering,  however  essential  these  may  be.  Of  course  this  is 


PRODUCTION. 


169 


wrong,  because  it  is  narrow.  It  proceeds  from  an  inadequate 
analysis  of  Value.  That  which  is  “produced,”  that  with 
which  we  have  to  deal,  is  not  any  form  of  Matter,  but  is  a 
valuable  Service.  It  is  plain,  that  they  are  “producers,” 
whose  direct  action  originates  value ;  but  we  have  seen  per¬ 
fectly  already,  that  value  is  not  an  attribute  of  matter,  but  a 
relation  of  mutual  services.  Some  of  the  services  may  have 
been  employed  upon  matter,  and  in  a  certain  sense  may  be 
embodied  in  it,  but  what  is  really  sold  is  not  the  matter,  but 
the  services  ;  and  services  are  all  the  time  being  sold,  such 
as  those  of  the  singer,  the  teacher,  the  clergyman,  and  scores 
besides,  which  have  no  connection  whatever  with  matter. 
Yet  these  services  have  purchasing-power  precisely  like  other 
services,  the  action  of  these  persons  originates  value,  and 
therefore,  they  are  “  producers.”  Once  more,  then,  we 
define  Production  as  the  whole  rendering  of  any  thing  for 
which  something  is  demanded  in  return ,  and  Consumjition  as 
the  receiving  of  something  for  which  any  thing  has  been  pre¬ 
pared  to  be  rendered  and  is  rendered  in  return. 

Two  things  are  here  worthy  of  notice  before  we  pass  on. 
First,  in  the  light  of  these  true  and  simple  definitions,  how 
utterly  misleading  seems  the  old  description  of  Political 
Economy  as  “the  science  of  the  Production,  Distribution, 
and  Consumption  of  Wealth.”  A  worse  description  of  a 
good  science  could  scarcely  be  put  together  in  words.  To 
say  nothing  more  than  has  been  already  said  about  the 
irreducible  word  “wealth,”  this  description  as  used  by 
the  second  school  implies  that  “production”  is  one  thing, 
“  distribution  ”  another,  and  “  consumption  ”  still  another ! 
Professor  Walker  at  the  opening  of  his  Wages  Question  makes 
each  of  these  distinct  from  the  others,  and  then  makes  “  ex¬ 
change  ”  distinct  from  all  three  of  them.  This  is  not  analy¬ 
sis,  but  concision.  The  second  school  borrowed  all  these 
terms  from  their  predecessors,  the  physiocrats,  and  then 
commenced  and  continued  to  misapply  them.  As  first  used 
the  terms  were  well  enough,  but  as  used  since  they  have 


170 


POLITICAL  ECONOMY . 


become  too  bad.  The  physiocrats,  as  we  saw  in  the  first 
chapter,  made  the  grand  distinction  between  biens  (goods 
not  sold)  and  richesse  (goods  sold) .  But  their  too  narrow 
fundamental  notion  was,  that  the  physical  earth  is  the  only 
mother  of  real  richesse.  Hence  they  are  often  called  the 
agricultural  school,  and  hence  they  followed  with  extreme 
care  each  form  of  the  raw.produce  of  the  earth  until  it  found 
its  ultimate  consumer.  The  person  who  extracted  or  ob¬ 
tained  in  any  way  this  raw  produce  from  the  earth  and  sold 
it,  for  example  the  farmer,  was  called  by  them  a  producer ; 
the  person  who  transformed  or  transported  this  once  or 
more,  for  example  the  miller  or  baker,  and  then  sold  it,  was 
called  by  them  a  distributer ;  and  the  person  into  whose 
hands  it  came  by  purchase  for  final  use,  for  example  the 
boarder,  was  called  a  consumer  or  consommateur .  They 
tried  to  trace  their  article  of  richesse  through  all  its  commer¬ 
cial  changes  to  the  end,  as  wheat,  flour,  bread,  and  board. 
To  their  minds  it  was  one  complex  process  through  which 
some  one  thing  passed,  every  step  of  which  was  accompa¬ 
nied  by  an  exchange,  and  the  whole  of  which  is  well  de¬ 
scribed  by  the  single  term  “  exchange.’ ’  They  used  the 
whole  phrase,  “the  production  and  distribution  and  con¬ 
sumption  of  wealth,”  as  indicating  one  really  indivisible 
process,  and  never  dreamed  that  their  successors  of  the 
second  school  would  tear  it  as  they  have  done  into  confused 
disjecta  membra.  The  ingenuity  and  patience  displa}Ted  in 
trying  to  make  and  understand  these  artificial  distinctions, 
would,  if  applied  to  the  natural  divisions  of  the  subject, 
have  advanced  the  science  many  stages.1 

Second,  in  the  light  of  the  true  definition  of  production 
and  consumption,  we  may  see  how  false  is  that  estimate  in 
the  popular  mind,  by  which  producers  are  placed  in  strong 
contrast  with  consumers ,  as  if  these  were  quite  separate 
classes,  and  as  if  the  producers  were  the  meritorious  people 


1  See  Macleod  in  the  third  of  liis  Cambridge  Lectures,  and  in  Elements  of  Eco¬ 
nomics  (1SS1),  pp.  61  et  seq.,  for  a  good  exposition  of  phyeiocralic  doctrine. 


PBODUCTION. 


171 


and  the  consumers  nearly  worthless  ones.  This  notion  is 
very  shallow,  and  perhaps  for  that  reason  is  widely  extended. 
The  growers  and  manufacturers  of  material  commodities 
seem  to  many  more  worthy  of  encouragements  than  those 
who  buy  these  products ;  but,  as  a  matter  of  fact,  many 
of  these  buyers  buy  directly  or  indirectly  with  other  material 
commodities ;  and  those  who  buy  with  labor,  as  operatives, 
and  those  who  buy  with  claims,  as  bankers,  and  those  who 
buy  by  transportation,  as  shippers,  are  just  as  essential  to 
exchange  as  the  farmers  and  manufacturers.  Even  in  this 
false  sense  of  the  words,  that  connects  them  directly  with 
some  tangible  commodity,  where  would  the  “producers” 
be  were  it  not  for  the  “consumers”?  Where  would  pro¬ 
duction  be  at  any  one  point  if  it  were  not  for  production  at 
other  points,  by  means  of  which  to  take  off,  that  is,  “  to  con¬ 
sume,”  the  products  of  the  first  point?  In  the  only  scien¬ 
tific  sense  of  the  terms,  each  party  to  an  exchange  is  at  the 
same  moment  “  producer”  and  “  consumer,”  because  each  is 
at  the  same  moment  buyer  and  seller,  and  because  each 
has  gone  through  the  processes  or  become  proprietor  of  the 
results  of  the  processes  by  which  each  service  has  been 
fitted  for  the  exchange,  and  this  too  without  any  reference 
to  which  one  of  the  three  kinds  of  valuable  things  it  is  that 
either  party  renders.  Economy  deals  roughly  with  many 
popular  illusions,  and  leaves  no  vestige  at  all  of  that  one 
which  exalts  “  producers  ”  at  the  expense  of  “  consumers.” 

Having  now  a  clear  and  correct  nomenclature,  we  may 
proceed  to  the  facts  and  laws  of  Production,  and  be  sure  of 
our  results.  The  strength  and  safety  of  our  conclusions 
are  derived  from  the  simplicity  and  certainty  of  the  forces 
at  work.  No  man  has  ever  denied  the  great  facts  that  lie 
at  the  basis  of  exchange.  That  men  are  possessed  of  de¬ 
sires,  that  efforts  are  necessary  in  order  to  meet  these,  that 
these  efforts  are  exchangeable,  and  that  mutual  satisfac¬ 
tions  are  the  result  of  the  exchange,  are  propositions  univer¬ 
sally  admitted.  From  these  simple  truths  spring  all  the 


172 


POLITICAL  ECONOMY. 


laws  of  our  science.  One  man  may  and  does  put  forth  the 
effort  necessary  for  the  satisfaction  of  another  man’s  desire. 
But  since  the  effort  is  not  for  himself  but  for  another,  and 
since  to  put  forth  efforts  is  not  naturally  agreeable  to  man, 
and  never  becomes  so  except  in  connection  with  the  satis¬ 
faction  to  which  they  minister,  he  will  demand  for  his  effort 
some  corresponding  effort  made  for  him.  This  is  a  simple 
fact.  No  man  will  work  for  another  for  nothing.  But  he 
will  work  with  alacrity  and  persistency  in  view  of  a  suitable 
reward.  This  reward  is  the  return  service,  whatever  it  may 
be,  and  thus  it  happens  that  Society  is  one  vast  hive  of  buy¬ 
ers  and  sellers,  every  man  bringing  something  to  the  market 
and  carrying  something  off.  We  speak  of  the  commercial 
classes,  but  all  classes  are  commercial.  Everybody  ex¬ 
changes.  You  do  something  for  me,  and  I  will  do  some¬ 
thing  for  you,  is  one  of  the  deepest  laws  of  Society.  From 
this  results  the  division  of  employments,  and  all  the  various 
professions.  Each  person  brings  his  own  product  and  ex¬ 
changes  with  other  persons  as  best  he  may.  The  farmer 
brings  his  produce,  and  exchanges  ;  the  mechanic  brings  the 
product  of  his  skilled  labor,  and  exchanges ;  the  laborer 
brings  his  strength,  the  teacher  his  knowledge,  the  merchant 
his  goods,  the  banker  his  credits,  the  physician  his  skill,  the 
lawyer  his  lore,  the  clergyman  his  life  and  learning,  the 
editor  his  scissors  and  leaders,  the  singer  his  voice,  the  actor 
his  mimicry,  and  so  on  to  the  end  of  the  list,  and  all  are 
ready  to  do  service,  —  for  a  consideration.  Indeed,  when  we 
look  out  upon  Society,  the  most  striking  thing  w*e  observe 
about  it  is,  that  these  processes  of  preparation  and  these 
actual  exchanges  are  going  on  in  a  thousand  directions  at 
once,  determining  all  occupations  and  the  tenor  of  all  men’s 
lives,  reaching  everywhere  and  permeating  every  thing,  and 
all  this  the  more  rapidly  and  perfectly  as  advance  knowledge 
and  civilization  and  the  mingling  of  the  nations. 

1.  The  Amount  of  Production,  as  measured  by  money  or 
otherwise,  in  any  progressive  country  or  any  part  of  it,  not 


PRODUCTION. 


173 


to  mention  the  world  at  large,  is  something  amazing,  and  is 
becoming  constantly  greater.  This  little  State  of  Massa¬ 
chusetts,  containing  but  7,800  square  miles,  made  in  1875 
$532,136,333  of  manufactured  goods  to  sell;  and  this  was 
only  a, part  of  one  class  of  salable  things  offered  in  one  small 
State.  The  great  prairie  State  of  Illinois,  whose  main  pro¬ 
duction  was  of  course  agricultural,  yet  in  1880  put  into  the 
market  $444,000,000  worth  of  manufactures.  It  is  only  by 
snatches  here  and  there  that  we  can  gain  any  adequate  idea 
of  the  vastness  of  the  Production  of  our  own  country. 
There  was  produced  of  pig  iron  in  the  United  States  in  the 
year  1880  4,295,414  net  tons  ;  of  rolled  iron  (excluding 
rails)  1,838,906  net  tons;  of  iron  and  steel  rails  for  rail¬ 
roads  1,461,837  net  tons;  of  all  kinds  of  steel  (excluding 
■steel  rails)  1,397,015  net  tons;  and  of  anthracite  coal 
27,433,329  gross  tons.  The  cotton  crop  of  the  United  States 
for  1880  was  5,737,257  bales ;  the  corn  crop  1,537,000,000 
bushels  ;  and  the  wheat  crop  480,000,000  bushels.  The  for¬ 
eign  commerce  of  the  United  States  for  the  calendar  year 
1877,  under  a  tariff-system  designed  to  restrict  foreign  trade, 
was  $1,176,000,000;  and  the  foreign  commerce  of  Great 
Britain  with  one  third  less  of  population,  under  a  free  sys¬ 
tem  of  trade,  amounted  to  $2,978,355,000  in  the  same  time. 
During  the  fiscal  year  closing  June  30,  1881,  the  foreign 
trade  of  the  United  States,  notwithstanding  the  obstacles  of 
a  resirictive  tariff,  amounted  to  $1,544,912,692;  for  it  is 
hard  work  even  by  hostile  legislation  to  destroy  the  com¬ 
merce  of  a  great  people.1  The  volume  of  the  foreign  trade 
of  Gieat  Britain  for  their  fiscal  year  closing  March  31,  1881, 
was  between  two  and  three  times  larger  than  that  of  the 
United  States.  These  immense  sums  represent  but  a  small 
part  of  the  traffic  going  on  in  these  two  countries  in  tangible 
goods  alone  ;  because  the  volume  of  domestic  trade  in  com¬ 
modities  is  always  many  fold  larger  than  the  volume  of  for¬ 
eign  trade.  The  volume  of  wages  of  all  kinds  paid  in  these 


-  Report  U.  S.  Bureau  of  Statistics. 


174 


POLITICAL  ECONOMY . 


two  countries  in  a  year  is  a  sum  impossible  to  be  ascertained. 
As  a  mere  hint  of  the  amount  of  transactions  in  claims  in 
these  countries,  note,  that  the  average  daily  clearings  of 
credit-paper  at  the  New  York  clearing-house  alone  from 
1872  to  1878  was  $78,000,000,  and  the  daily  clearings  in 
London  alone  for  the  same  time  were  $100,000,000.  Since, 
then,  as  a  matter  of  fact,  Production  on  a  gigantic  scale  is 
going  forward,  not  in  the  public  market-places  only,  but  in 
every  department  of  life  ;  since  men  do  constantly  put  forth 
onerous  efforts  of  all  kinds  in  order  to  get  ready  to  satisfy 
other  men’s  desires,  and  this  for  the  sake  of  receiving  back 
from  them  the  results  of  corresponding  efforts  in  return ; 
there  must  be  strong  reasons  in  the  nature  of  things  and  in 
the  nature  of  man  for  such  striking  facts  as  these. 

2.  Let  us  now  look  into  the  Grounds  of  this  varied  Pro¬ 
duction.  The  desires  of  men  are  not  only  various  in  kind 
and  indefinite  in  degree,  but  also  tend  to  increase  in  variety 
and  extent  by  the  progress  of  knowledge  and  freedom.  To 
the  gratification  of  almost  all  these  desires,  however,  there 
are  obstacles  interposed,  some  of  which  are  physical  and 
some  moral ;  and  these  obstacles  are  so  great  in  all  direc¬ 
tions,  that  the  powers  of  the  individual  man  are  utterly 
incompetent  to  surmount  them.  They  mock  at  his  weak¬ 
ness,  and  throw  him  back  upon  his  destitution.  Without 
association  with  his  fellow-men,  there  is  no  creature  so  help¬ 
less,  so  unable  to  reach  his  true  end,  as  is  man  ;  and  there¬ 
fore  it  is,  that  the  impulse  to  association  is  one  of  the 
strongest  of  our  natural  impulses.  Men  come  together,  as 
it  were  by  instinct,  into  society ;  and,  associating  themselves 
together  in  a  society,  it  is  very  soon  discovered,  not  only 
that  there  are  various  desires  in  the  different  members  of  the 
community  which  are  now  readily  met  by  co-operation  and 
mutual  exchange,  but  also  that  there  are  very  different 
powers  in  the  different  individuals  in  relation  to  those  obsta¬ 
cles  which  are  to  be  surmounted.  There  is  a  vast  diversity 
in  natural  gifts.  One  man  has  physical  strength,  with  no 


PRODUCTION'. 


If** 

1(0 

mechanical  ingenuity ;  another  combines  with  a  feeble  body 
a  wonderful  knack  for  contrivance  ;  a  third  has  a  philosoph¬ 
ical  turn,  liking  to  examine  into  the  laws  of  nature ;  and  a 
fourth  has  a  bent  and  genius  for  traffic.  Now,  then,  Nature 
speaks  in  this  diversity  of  gifts  in  as  loud  a  voice  as  she  can 
utter,  in  favor  of  such  a  degree  of  association  and  exchange 
as  shall  allow  a  free  development  of  these  varying  capaci¬ 
ties,  while  they  work  upon  the  obstacles  to  the  gratifica¬ 
tion  of  men’s  wants  which  are  appropriately  opposite  to 
them. 

It  is,  then,  personal  interest  that  leads  men  to  produce, 
and  this  is  one  of  the  strongest,  if  not  the  strongest,  of  the 
natural  and  social  forces.  It  is  because  a  given  effort  put 
forth  for  another,  in  view  of  a  return,  realizes  more  of  sat¬ 
isfaction  than  when  put  forth  directly  for  one’s  self,  that 
exchange  ever  takes  place.  Why  does  it  realize  more? 
Because  there  is  diversity  of  advantage  between  dif¬ 
ferent  MEN  AND  BETWEEN  DIFFERENT  NATIONS,  IN  DIFFERENT 

respects.  All  exchange  depends  on  diversity  of  relative 
advantage ;  and  diversity  of  relative  advantage  exists  by 
God’s  appointment  among  individual  men,  and  among  the 
nations.  Reserving  this  national  diversity  for  a  later  dis¬ 
cussion,  it  is  very  clear  that  a  diversity  of  advantage  in 
different  things  displays  itself  as  between  the  individuals 
of  every  community  large  and  small.  There  is  no  village  in 
which  one  man  has  not  an  advantage  over  his  neighbors 
in  the  making  of  coats,  another  in  the  shoeing  of  horses, 
another  in  the  curing  diseases,  another  in  the  keeping  a 
school ;  while  each  of  those  neighbors  may  have  an  advan¬ 
tage  over  each  of  these  in  some  other  art  or  avocation. 
This  diversity  of  advantage  in  various  directions  depends, 
in  every  advanced  state  of  society,  partly  upon  diversit}'  of 
original  gifts,  partly  upon  concentration  of  personal  effort 
upon  the  one  set  of  obstacles  that  lie  in  the  path  of  a  single 
branch  of  business,  and  partly  upon  the  use,  and  familiarity 
in  the  use,  of  the  gratuitous  forces  of  nature  which  lend 


176 


POLITICAL  ECONOMY. 


their  aid  towards  overcoming  these  obstacles.  As  the  result 
of  one  or  two  or  all  of  these,  one  man  comes  to  have  a 
legitimate  advantage  over  others  in  his  own  branch  of  busi¬ 
ness,  whatever  it  is  ;  and  the  others  come  to  have  a  legiti¬ 
mate  advantage  over  him  in  their  own  branches  of  busi¬ 
ness,  whatever  they  are ;  and  if  he  has  desires  which  their 
efforts  can  satisfy,  and  they  desires  which  his  efforts  can 
satisfy,  nothing  more  is  necessary  to  a  profitable  exchange 
between  them  than  this  relative  advantage  at  different 
points. 

For  example,  the  tailor  and  blacksmith  can  profitably 
exchange  their  respective  efforts  just  as  soon  as  each  has  a 
relative  superiority  to  the  other  in  his  own  trade,  provided 
of  course  each  has  a  desire  for  the  product  of  the  other : 
and  the  greater  the  relative  superiority  of  each  to  the  other, 
the  more  profitable  is  the  exchange  to  both.  This  is  a  point 
of  considerable  consequence,  and  will  repay  some  pains  in 
illustration.  If  the  blacksmith  can  shoe  horses  only  a  little 
better  than  the  tailor  could  shoe  them,  and  the  tailor  make 
coats  only  a  little  better  than  the  blacksmith  could  make 
them,  there  will  be  only  a  slight  advantage  in  their  mutually 
exchanging  efforts.  For  the  sake  of  definiteness,  let  us  say, 
that  the  tailor’s  capacity  in  making  coats  is  6,  and  his  capa¬ 
city  in  shoeing  horses  is  5  ;  and  the  blacksmith’s  capacity  in 
shoeing  horses  is  6,  and  his  capacity  in  making  coats  is  5. 
Each  has  a  relative  superiority  to  the  other  of  1,  and  if  they 
exchange,  there  is  an  advantage  of  2  to  be  divided  between 
them.  Now  let  us  suppose  that  each,  by  exclusive  devotion 
to  his  own  trade,  by  developing  his  latent  skill  and  ingenu¬ 
ity,  and  by  availing  himself  of  all  the  forces  of  nature  at 
his  command,  comes  to  have  a  capacity  in  his  own  business 
of  15,  his  capacity  in  the  other  business  remaining  as  before 
at  5.  Each  now  has  a  relative  superiority  to  the  other  of 
10,  and  when  they  exchange  there  is  an  advantage  of  20  to 
be  divided  between  them.  The  motive  to  an  exchange,  and 
the  gain  of  an  exchange,  are  ten  times  greater  than  they 


PRODUCTION. 


ITT 


were  before.  Therefore  we  lay  down  the  principle,  as  uni¬ 
versally  applicable  to  all  exchanges,  that  the  greater  the 
relative  superiority  at  different  points,  the  more  profitable 
do  exchanges  become.  If  this  principle  is  just,  and  we  may 
flatter  ourselves  that  it  will  be  found  to  be  just,  it  follows, 
•hat  every  man  who  has  any  thing  to  exchange,  is  directly 
interested  in  the  success  of  his  fellow-citizens,  that  every 
trade  finds  its  advantage  in  the  increasing  development  of 
other  trades,  and  that  all  discoveries  and  inventions  by  which 
Nature  is  made  to  pay  tribute  to  any  art  is,  restrictions 
apart,  so  much  clear  gain  to  the  world  at  large.  In  the 
light  of  sound  principles,  what  has  been  sometimes  called 
the  jealousy  of  trade  is  simply  sill}'. 

3.  We  may  well  note  next  the  Conditions  of  successful 
Production.  As  soon  as  there  is  any  difference  of  relative 
advantage,  there  begins  to  be  a  motive  for  an  exchange,  and 
a  gain  as  the  result ;  and  the  motive  and  the  gain  become 
stronger  and  greater  as  the  difference  increases ;  so  that  the 
gains  of  exchange  are  the  greatest  in  that  state  of  society 
in  which  the  freest  opportunity  is  allowed  to  every  individ¬ 
ual  to  employ  his  peculiar  powers  in  work  for  which  he  is 
best  fitted,  in  which  desires  are  so  various  and  employments 
so  diversified  as  to  give  a  chance  for  all  kinds  of  efforts, 
and  in  which  men  avail  themselves  to  the  utmost  of  those 
natural  advantages  and  gratuitous  powers  which  lie  open  to 
their  disposal.  Association  is  the  first  main  condition  of 
production.  Men  must  come  together  either  locally  or  com¬ 
mercially,  must  learn  each  other’s  wants,  must  compare  with 
each  other  powers  and  tastes  and  opportunities,  must  come 
to  have  some  confidence  in  each  other,  and  begin  by  render¬ 
ing  services  back  and  forth  to  experience  the  satisfactions 
and  the  new  strength  that  exchanges  bring.  Whatever  im¬ 
proves  the  character  of  men,  and  thus  leads  to  greater  con¬ 
fidence  among  them,  will  enlarge  their  commerce,  and  knit 
closer  and  wider  ties  of  association  and  production.  Neigh¬ 
borhood  associations  and  productions  soon  create  a  surplus 


178 


POLITICAL  ECONOMY. 


to  be  exchanged  with  other  neighborhoods ;  parts  of  single 
nations  however  remote  from  each  other  find  a  relative  diver¬ 
sity  of  advantage  and  an  increasing  profit  in  connecting 
themselves  by  the  ties  of  trade  ;  and  the  separate  nations 
learn,  though  late,  that  they  are  only  one  great  fami'y  for 
the  grand  ends  of  production  and  progress.  Now,  this 
broad  association  as  between  persons  and  nations,  instead 
of  detracting  at  all  from  the  individuality  and  power  of  each, 
is  the  very  thing  that  brings  out  the  individuality,  and  inten¬ 
sifies  the  power,  of  each ;  because  it  is  only  thus  that  full 
scope  is  given  to  the  exercise  and  development  of  each 
peculiar  power  whether  of  the  individual  or  of  the  nation. 
Carey  is  wholly  right  in  his  principle  that  the  degree  of  indi¬ 
viduality  depends  on  the  degree  of  association,  each  advan¬ 
cing  hand  in  hand  with  the  other  ;  while  he  seems  to  be  wrong 
in  lacking  confidence  in  the  natural  forces  at  work  tending 
to  the  highest  degree  of  association  and  consequently  to  the 
highest  degree  of  individuality.  Personal  interest  and  a 
strong  sense  of  justice  are  driving  society  continually  to 
exchange,  and  to  a  wider  and  wider  application  of  the  prin¬ 
ciples  of  exchange,  that  is  to  say,  to  a  higher  and  higher 
degree  of  association,  which  allows  of  course  a  freer  growth 
of  individuality.  When  interest  and  justice  fail  as  motive 
powers,  at  least  in  this  department,  it  is  in  vain  to  trust  to 
an  inferior  and  factitious  force. 

Invention  is  the  second  main  condition  of  production. 
Production  is  processes  ;  and  Nature  stands  ever  ready  with 
her  free  agencies  to  facilitate  these  processes,  just  so  far  as 
the  inventive  brain  of  man  can  contrive  to  unite  the  two. 
Invention  is  the  marriage  of  a  gratuitous  force  to  an  oner¬ 
ous  process,  and  the  fruit  of  that  union  is  an  easier  way  and 
multiplied  utilities.  There  are  some  in  every  considerable 
community,  who  like  to  contrive,  who  find  their  joy  in  find¬ 
ing  a  new  power  in  Nature  or  some  new  application  of  an 
old  power ;  were  it  not  for  association  and  exchange,  the 
individuality  of  these  would  be  repressed,  and  they  would 


PRODUCTION. 


179 


have  to  drudge  for  tlieir  daily  bread ;  but  the  worth  of  in¬ 
ventors  is  well  understood  in  every  progressive  community, 
and  under  exchange  their  livelihood  is  guaranteed  by  those 
who  hope  to  profit  by  its  results  while  their  work  is  matur¬ 
ing  ;  and  Production  rejoices  and  grows  strong  and  throws 
out  unnumbered  hands  to  make  instant  use  of  the  new 
power  and  the  easier  processes. 

Freedom  is  by  far  the  most  important  of  the  conditions 
of  production,  because,  where  freedom  is  conceded,  associa¬ 
tion  and  invention  follow  in  time  by  laws  of  natural  sequence. 
By  freedom  is  meant  the  practical  right  of  every  man  to 
employ  his  own  efforts  for  the  gratification  of  his  own  wants, 
either  directly  or  through  exchange.  Each  man’s  right  of 
freedom  is  limited  of  course  by  every  other  man’s  right 
of  freedom  which  he  is  not  at  liberty  to  infringe ;  and  also, 
in  certain  respects,  by  what  is  called  the  general  good,  of 
which  the  judge  must  be  the  government  under  wdiich  he 
lives.  Under  these  limitations,  which  limit  in  common  all 
other  rights,  the  right  to  produce  is  just  as  much  of  a  right 
as  the  right  of  breathing.  It  stands  on  the  same  unassail¬ 
able  ground.  Every  man  has  a  natural,  self-evident,  and 
inalienable  right  to  put  forth  efforts  for  his  own  well-being  ; 
and  whenever  two  men  find  that  by  exchanging  efforts  with 
each  other,  they  can  better  promote  their  own  happiness, 
they  have  an  indisputable  right,  subject  only  to  the  above 
limitations,  to  exchange  ;  and  it  is  a  high-handed  infringe¬ 
ment  of  natural  rights,  a  blow  aimed  at  the  life  and  source 
of  property,  when  an}’  authority  whatever  interferes  to  re¬ 
strict  or  prohibit  the  freedom  of  exchange,  except  that  act 
be  justified  by  a  solid  proof  that  other  private  or  public 
rights  which  are  as  well  based  as  the  right  of  exchange  are 
infringed  thereby.  Happily,  since  governments  have  be¬ 
come  more  enlightened  than  formerly,  they  perceive  for  the 
most  part  that  they  have  no  right  to  interfere  with  this 
natural  right  of  their  people,  and  also,  that  by  interfering 
with  it,  they  would  do  them  an  incalculable  injury.  The 


180 


POLITICAL  ECONOMY. 


onty  motive  to  a  mutual  exchange  of  services,  that  is  to  say, 
to  a  free  production,  is  always  and  everywhere  the  mutual 
benefit  of  the  parties.  After  all  the  processes  have  been 
gone  through  with  and  the  exchanges  consummated,  all  the 
parties  are  richer  than  before,  that  is,  have  more  satis¬ 
faction, s,  otherwise  processes  and  exchanges  would  cease. 
Therefore,  a  free  production  benefits  everybody,  and  harms 
nobody.  Moreover,  under  a  system  of  free  production, 
every  man  is  allowed,  under  the  stimulus  of  self-interest,  to 
follow  the  bent  of  his  own  mind,  to  work  away  at  those 
obstacles  to  the  gratification  of  human  desires  which  he 
feels  himself  best  able  to  overcome,  and  to  avail  himself 
of  all  those  helps  in  his  work,  of  which  Nature  offers  to  him 
a  full  store.  Under  these  circumstances,  obstacles  give  way 
in  all  directions  :  the  amount  of  material  products  produced 
and  offered  for  exchange  is  vastly  augmented  ;  the  number 
and  variety  and  excellence  of  the  services  proffered  is  indefi¬ 
nitely  increased  ;  the  diversified  and  rapidly  increasing  de¬ 
sires  in  such  a  community  are  readily  met  by  exchange  ;  all 
peculiar  facilities  are  taken  advantage  of,  and  the  difference 
of  relative  advantage  becomes  great  in  all  directions,  and  a 
new  day  of  industrial  and  commercial  prosperity  is  ushered 
in.  Under  freedom  all  men  have  the  greatest  possible 
motive  to  produce,  because  they  can  dispose  of  their  efforts 
to  the  best  advantage.  They  can  purchase  with  these 
efforts  what  they  will,  and  when  the}7,  will,  and  where  they 
will.  Thus  freedom  leads  to  extended  association,  and, 
speedily  also,  to  the  invention  of  machinery  and  all  labor- 
saving  appliances.  Therefore,  again,  no  reason  can  be 
given,  no  good  reason  ever  has  been  given,  why  processes 
and  exchanges  should  not  be  the  freest  possible. 

4.  One  of  the  underlying  laws  of  Production  is,  that  oner¬ 
ous  efforts  bear  a  less  and  less  proportion  to  realized  utilities. 
Men  have  a  strong  motive  to  substitute,  whenever  they  can, 
force  for  muscle,  machinery  for  labor ;  and  Providence  has 
placed  freely  at  their  disposal  such  materials  and  forces  in 


PRODUCTION. 


181 


Nature,  that,  availing  themselves  skilfully  of  these,  irk¬ 
some  efforts  are  lessened,  and  at  the  same  time,  the  lessened 
efforts  are  more  productive.  For  example,  the  first  people 
ground  their  grain  by  hand  ;  and  it  was  a  weary  task  to  sit 
cramped  by  the  mill  all  day,  and  turn,  and  turn,  and  turn.1 
The  effort  was  great,  and  the  result  was  small.  At  length 
it  occurred  to  somebody  that  the  weight  of  water  might  turn 
a  wheel,  and  that  the  wheel  might  turn  the  mill-stones. 
Once  thought  of,  the  water-wheel  was  soon  an  actual  fact : 
instead  of  human  strength,  Nature  wrought  now,  and  what 
is  better,  wrought  for  nothing !  Human  services  were  still 
needed,  and  doubtless  more  of  them  ;  the  hopper  must  be 
fed,  the  bags  tended,  and  the  meal  distributed ;  but  there 
was  less  ache  and  more  product !  More  grain  was  ground, 
bread  came  easier  to  the  poor,  and  the  wheel  which  free 
water  turned  blessed  its  patrons  with  increased  and  cheap¬ 
ened  products.  The  old  liand-loom,  to  take  another  in¬ 
stance,  was  the  only  means  antiquity  knew  of  for  procuring 
clothing  of  fabrics.  The  shuttle  was  thrown  by  human 
muscle.  Every  thread  cost  a  throw.  Women  for  the  most 
part  did  the  weaving,  and  the  word  wife  is  supposed  by 
many  to  be  connected  in  its  derivation  with  the  word  iveave. 
While  the  slave  woman  sat  on  the  ground,  and  turned  the 
handle  of  the  mill  to  grind  the  grain,  the  wife  was  exalted 
to  the  dignity  of  the  loom,  and  worked  away  at  the  monot¬ 
onous  task,  thread  by  thread,  thread  by  thread.  Doubtless 
the  hand-loom  was  a  great  improvement  on  the  earlier  pro¬ 
cesses,  and  was  itself  gradually  improved  as  the  centuries 
went  by,  each  improvement  being  the  substitution  either  of 
a  gratuitous  force  of  Nature  for  an  irksome  human  effort, 
or  an  easier  process  of  art  for  a  more  laborious  one.  Every 
step  of  improvement  was  a  lessening  of  obstacles  with  ref¬ 
erence  to  a  given  satisfaction.  All  the  way  up  to  our  pres¬ 
ent  admirable  machinery  —  the  power-loom,  which  weaves, 
as  if  by  magic,  while  a  child  can  tend  it  —  eveiy  step  has 


1  Exod.  xi.  5;  Isa.  xlvii.  2. 


182 


POLITICAL  ECONOMY. 


marked  a  lessening  of  efforts  relatively  to  utilities.  The 
utility,  the  satisfaction,  the  yard  of  cloth,  has  cost  less  and 
less  of  human  effort,  not  onl}T  to  the  producer,  but,  through 
exchange,  to  everybody.  So  again  the  farmer,  who  used 
to  cut  his  meadow-grass  with  a  hand-swung  scythe,  then 
rake  it  up  with  a  hand-drawn  rake,  and  then  pitch  it  into  the 
loft  with  a  hand-lifted  fork,  now  mows  and  rakes  and  pitches 
b}T  the  medium  of  machines  ;  and  so  far  forth,  the  well-cured 
hay  costs  less  to  all  concerned.  This  progress  from  difficult 
to  easier,  from  costly  to  cheaper,  thus  briefly  illustrated  in 
the  three  cases  of  flour,  cloth,  and  hay,  has  been  going  on, 
and  is  constantly  going  on  in  all  directions  ;  more  strikingly, 
indeed,  in  the  production  of  material  commodities,  in  which 
the  powers  of  Nature  may  be  indefinitely  applied  by  ma¬ 
chinery,  while  at  the  same  time  there  is  no  production  of  any 
kind  that  is  not  greatly  facilitated  by  the  progress  of  knowl¬ 
edge  and  experience ;  and  the  benefits  of  this  increasing 
advantage,  and  of  this  increasing  diversity  of  advantage, 
come  home  through  exchanges  to  everybody ;  and,  conse¬ 
quently,  the  satisfactions  of  all  bear  a  larger  and  larger 
proportion  to  their  efforts. 

What  is  the  effect  on  values  of  these  processes  now  made 
easier  in  all  directions  ?  Clearly,  since  value  is  nothing  but 
the  relation  between  two  services  exchanged,  no  effect  at  all 
is  produced  on  values,  if  the  improvements  have  gone  on 
equally  in  all  directions.  Every  thing  exchanges  just  as 
before.  If  the  improvements  have  not  gone  on  equally,  then 
the  value,  that  is,  the  purchasing  power,  of  those  products 
is  diminished  in  whose  production  the  improvements  have 
been  relatively  greater.  There  is  now  less  of  human  efforts 
represented  in  these  and  more  of  gratuitous  forces,  and,  the 
two  elements  of  desire  remaining  as  before,  the  intelligence 
of  buyers  and  the  competition  of  other  sellers  will  press 
down  the  value  of  these  products  at  any  one  point  of  sale, 
that  is,  more  of  them  will  have  to  be  rendered  as  against  less 
assisted  products.  The  utility  of  these  first  products,  how- 


PRODUCTION. 


183 


ever,  tliat  is,  their  capacity  to  gratify  desire,  remains  as 
before :  a  less  effort  has  brought  forth  the  same  utility. 
But  the  portion  of  effort  thus  set  free  does  not  probably 
remain  idle.  It  will  be  still  put  forth  to  create  a  larger  num¬ 
ber  of  products  of  the  same  kind,  each  one  of  which  indeed 
has  less  purchasing  power  than  before,  but  the  aggregate 
value  of  which  may  be  much  greater  than  before.  For 
example,  when  machinery  is  employed  in  the  making  of 
gloves,  which  before  were  cut  and  stitched  by  hand,  the 
value  of  a  pair  of  gloves,  estimated  in  any  thing  whose  pro¬ 
duction  has  not  been  altered  by  a  similar  improvement,  will 
infallibly  decline ;  but  the  aggregate  value  of  all  the  gloves 
made  in  the  establishment  will  be  greater  than  before,  be¬ 
cause  otherwise  there  would  have  been  no  motive  to  intro¬ 
duce  the  machinery.  No  new  element  has  come  into  the 
determination  of  the  value  of  any  pair  of  these  gloves :  it  is 
still  the  old  circle  of  desires  and  efforts  and  estimations : 
this  machine,  and  all  other  machines,  can  create  no  value. 
The  machine  helps  to  create  utilities,  since  each  pair  of  the 
now  increased  number  of  gloves  has  the  same  utility  as  a 
pair  of  the  former  fewer  number ;  and  the  maker  of  gloves 
is  able  to  render  a  service  to  a  greater  number  of  persons 
than  before  ;  and  it  is  true,  that,  for  a  time,  especially  if  the 
new  process  be  not  yet  generally  applied  to  glove-making, 
before  Value  has  a  chance  to  adjust  itself  to  the  new  state 
of  things,  he  may  realize  extra  gains ;  he  may  obtain,  in 
part,  the  old  price  for  his  new  product,  and  this  is  the  very 
thing  that  led  him  to  invent  or  to  purchase  the  machine  ;  but 
it  is  confusion  to  say  that  the  machine  creates  value:  the 
machine  lessens  one  of  the  two  onerous  efforts,  which,  in 
conjunction  with  two  desires,  issue  in  value ;  and  he  who 
renders  this  assisted  service  may  have  a  temporary  advan¬ 
tage  over  him  with  whom  he  exchanges.  But  just  as  soon 
as  machines  come  to  be  generally  employed  in  the  business, 
Value  tends  to  adjust  itself  through  competition  to  the  real 
human  effort  in  the  service  rendered,  and  the  extra  gains  of 


184 


POLITICAL  ECONOMY . 


the  first  operators  are  cut  off.  The  gain  of  the  reduction 
has  now  become  permanent  to  all  consumers  of  gloves.  It 
is  this  interval  between  the  old  price  and  the  new  which  gives 
to  producers  the  margin  for  their  enterprise,  and  a  sharp 
spur  to  invent  and  adopt  improvements.  The  improvements 
once  become  general,  the  gain  redounds  to  the  whole  com¬ 
munity.  The  value  then  of  all  services  which  have  been 
facilitated  by  improved  processes,  is  constantly  being  les¬ 
sened  relatively  to  services  not  equally  facilitated ;  and  here 
we  gain  the  first  glimpse  of  a  truth,  which  will  afterwards 
appear  in  the  clearest  light,  namely,  that  the  value  of  com¬ 
modities  tends  to  decline  as  compared  with  human  labor,  and 
therefore,  that  there  is  inwrought  into  the  nature  of  things 
a  tendency  towards  the  elevation  of  the  masses  of  men  in  a 
scale  of  comforts. 

5.  Another  leading  proposition  of  Production  is,  that  pro¬ 
duction  may  go  on  indefinitely  in  all  directions  without  ever 
a  fear  of  reaching  a  general  glut  of  products.  This  impor¬ 
tant  proposition  was  first  fully  developed  by  Say  in  chapter 
xv.  of  his  well-known  treatise  ;  and  the  proof  of  it,  and  some 
of  the  consequences  of  it,  are  well  worthy  of  our  attention. 
Let  us  put  the  proof  of  it  in  our  own  way,  and  in  this  form : 
the  desires  of  men  which  the  efforts  of  other  men  can  satisfy, 
are  unlimited  in  number  and  indefinite  in  degree  ;  and  there¬ 
fore,  mutual  efforts  can  continue  to  be  put  forth  in  exchange, 
until  these  unlimited  and  indefinite  desires  of  all  men  are  all 
met  —  a  goal  which  never  can  be  reached.  This  proposition 
demolishes  at  a  stroke  the  fallacy  which  pervades  Dr.  Chal¬ 
mers’  interesting  but  not  over-sound  book  on  “Political 
Economy,”  namely,  that  the  universal  market  is  limited,  and 
therefore,  were  it  not  for  the  unproductive  consumption  of 
the  rich  and  luxurious,  and  the  equally  unproductive  con¬ 
sumption  of  wars,  there  would  soon  be  a  general  glut,  and 
production  must  cease  for  the  lack  of  a  vent  for  its  products. 
What  constitutes  a  market  for  any  thing?  This,  that  some¬ 
body  desires  the  service  thus  offered,  and  is  willing  to  render 


PRODUCTION. 


185 


a  return  service  acceptable  to  the  offeier.  Only  two  things 
can  limit  the  universal  market,  first,  a  lack  of  desires,  and 
secondly,  a  lack  of  return  services.  But  there  can  be  no 
lack  of  desires  at  any  time,  and  there  will  be  the  greatest 
plenty  of  return  services  where  production  is  most  busy  and 
most  universal.  Therefore,  again,  no  general  glut  of  prod¬ 
ucts  is  possible  to  occur.  A  truth  which  we  have  already 
seen  in  another  connection,  re-appears  here  as  a  consequence 
of  this  proposition,  and  will  re-appear  again  and  again, 
namely,  that  all  persons  are  interested  commercially,  as  well 
as  morally,  in  the  prosperity  of  other  persons,  and  each  na¬ 
tion  which  has  any  thing  to  exchange,  is  directly  interested 
in  the  prosperity  of  all  other  nations ;  because  the  more  pro¬ 
duction  everywhere,  the  better  market  everywhere.  A  mar¬ 
ket  FOR  PRODUCTS  IS  PRODUCTS  IN  MARKET. 

But  while  no  such  thing  as  a  general  glut  of  products  ever 
did,  or  ever  can  occur,  a  glut  in  respect  to  certain  services 
is  very  common.  Through  want  of  foresight,  or  miscalcula¬ 
tion,  particular  services  are  offered  in  too  great  abundance, 
or  of  a  kind  not  adapted  to  the  demand,  and  in  respect  to 
these  the  market  is  truly  said  to  be  glutted.  This  frequently 
happens  with  editions  of  books  ;  more  copies  are  printed 
than  can  be  sold  at  remunerative  prices.  Also  when  fashion 
changes,  the  goods  which  were  fashionable,  but  are  so  no 
longer,  are  apt  to  be  in  excess  of  the  demand.  The  only 
precaution  that  can  be  taken  to  avoid  losses  of  this  charac¬ 
ter,  is  the  cultivation  of  foresight,  by  studying  as  accurately 
as  possible  the  nature  of  human  desires,  and  the  changes 
that  have  been  observed  to  take  place  in  them.  This  consti¬ 
tutes  mercantile  sagacity  ;  and  the  most  successful  producers 
in  all  departments  are  those  who  best  develop  this  sagacity, 
who  adapt  their  services  to  the  existing  and  coming  demand, 
who,  to  excellence  in  the  substance  of  their  services,  add 
taste  and  attractiveness  to  their  form,  who  tend  rather  to 
to  lead  the  fashions  for  the  many  than  follow  in  their  wake. 
The  field  of  production  is  like  the  billowy  and  heaving  sea  • 


186 


POLITICAL  ECONOMY. 


lo  navigate  most  successfully  requires  foresight,  a  wise  cour¬ 
age,  a  power  of  adaptation  to  varying  circumstances,  skill 
to  veer  and  tack  when  the  wind  changes,  and  a  will  to  run 
before  a  favoring  breeze  with  all  sails  set.  Production,  as 
a  general  rule,  is  no  dead  level  of  monotonous  exertion ; 
since  its  sphere  is  life  with  its  wants,  man  with  his  desires  ; 
and  there  is  scope  for  the  development  of  ingenious  mind  in 
almost  all  of  its  departments.  Since  all  exchange  is  due  to 
the  diversity  of  relative  advantage,  whoever  develops  his 
powers  of  observation,  of  application,  of  adaptation,  to  a 
higher  point,  and  avails  himself  more  skilfully  of  all  pecul¬ 
iar  facilities,  will  reap  a  larger  share  of  the  harvest  of 
exchange. 

6.  Let  us  next  examine  the  immense  increase  of  Produc¬ 
tion,  and  the  superior  perfection  of  products,  consequent 
upon  what  has  long  been  called  the  Division  of  Labor.  This 
phrase  is  the  title  of  the  first  and  most  famous  chapter  of 
Adam  Smith’s  famous  book,  and  has  been  more  read  than 
any  other  chapter,  partly  because  it  is  the  first  and  partly 
because  it  is  the  most  interesting.  The  phrase  was  not  wrell 
chosen  to  express  what  it  is  has  come  in  course  of  time  to 
mean,  and  we  must  employ  the  terms  in  their  broadest  sense 
in  order  to  make  them  useful  in  this  connection.  As  used 
by  Smith,  they  denote  a  specific  part  of  the  general  truth 
with  which  we  are  now  becoming  familiar,  namely,  that 
exchange  is  stimulated  and  made  profitable  by  all  natural 
diversity  of  employments,  by  the  application  of  all  peculiar 
gifts  to  the  corresponding  obstacles  that  lie  in  the  path  of 
production,  and  by  the  use  and  familiarity  in  the  use  of  all 
the  gratuitous  forces  of  Nature  by  means  of  implements  of 
all  sorts.  He  meant  the  dividing  up  of  a  process  or  employ¬ 
ment  into  particular  parts,  so  that  each  person  employed 
can  devote  himself  wholly  to  one  section  of  the  process ; 
and  his  point  was,  that  by  means  of  this  “  division  of  labor  ” 
all  the  processes  of  production  are  vastly  facilitated.  He 
cites,  as  an  illustration,  the  manufacture  of  pins.  One  man 


PRODUCTION . 


187 


draws  out  the  wire,  another  straightens  it,  a  third  cuts  it,  a 
fourth  sharpens  the  points,  a  fifth  grinds  it  at  the  top  for 
receiving  the  head.  The  making  the  heads  consists  of  two 
or  three  distinct  operations,  each  confided  to  a  single  person. 
The  remaining  processes  are  similarly  divided  up,  and  the 
result  is,  according  to  Dr.  Smith,  that  in  a  single  establish¬ 
ment,  employing  only  ten  persons,  48,000  pins  are  made  in 
a  day,  while  if  each  man  went  through  all  the  processes  him¬ 
self,  he  could  hardly  make  twenty  pins  a  day,  or  two  hundred 
for  the  whole  establishment. 

If  Dr.  Smith  had  lived  in  our  day,  and  seen  the  operation 
of  American  machines  in  pin-making,  he  could  have  made 
his  illustration  far  more  striking.  There  are  now  14  distinct 
processes  instead  of  the  10  of  a  century  ago  ;  the  head  is 
now  a  part  of  the  main  wire,  and  not  as  formerly  twists  of  a 
separate  smaller  wire,  and  is  formed  with  wonderful  rapidity 
by  the  Wright  machine,  that  works  automatically  ;  still  more 
wonderful  is  the  combination  in  one  complex  and  yet  simple- 
in-principle  machine  of  this  heading  process  with  the  straight¬ 
ening ,  cutting ,  and  grinding  processes  ;  and  most  wonderful 
of  all  is  the  machine  worked  by  two  children,  one  of  whom 
feeds  it  with  pins  and  the  other  with  papers,  by  which  the 
final  process  of  papering  is  completed,  the  pins  dropping  by 
the  million  into  the  holes  pierced  in  the  paper  to  receive  them, 
without  a  touch  of  a  human  hand.  It  has  been  calculated, 
that  18,740,800,000  single  pins  are  made  in  the  United 
States  yearly,  that  is  to  say,  375  for  each  head  of  the  popu¬ 
lation  in  1880. 

Pin-making  is  comparatively  a  simple  process,  while  watch¬ 
making  is  relative^  a  complicated  one.  It  was  put  in  evi¬ 
dence  before  a  committee  of  the  House  of  Commons  about 
the  middle  of  this  century,  that  there  were  one  hundred  and 
two  distinct  branches  of  the  watch-making  art,  to  each  of 
which  a  boy  might  be  put  apprentice  ;  and  when  his  appren¬ 
ticeship  had  expired,  he  was  unable,  without  subsequent 
instruction,  to  work  at  any  other  branch ;  and  that  the 


188 


POLITICAL  ECONOMY. 


watch -finisher  was  the  only  person,  out  of  the  one  hundred 
and  two,  who  was  able  to  work  in  any  other  department  than 
his  own.  American  machinery  has  put  watch-making  upon 
a  new  plane.  Several  elaborate  and  extremely  ingenious 
labor-saving  machines  are  now  in  use  whereby  great  perfec¬ 
tion  of  parts  and  accuracy  of  time-keeping  are  attained  at 
a  comDarativelv  small  cost. 

X  */ 

The  causes  of  increased  efficiency  imparted  to  production 
by  the  division  of  labor  are  reduced  by  Dr.  Smith  to 
three : — 

(a)  The  improved  dexterity,  corporeal  and  intellectual, 
acquired  by  the  repetition  of  one  simple  operation. 

( b )  The  saving  of  the  time  which  is  commonly  lost  in  pass¬ 
ing  from  one  species  of  work  to  another,  and  in  the  change 
of  place,  position,  and  tools. 

(c)  The  invention  of  a  great  number  of  machines  which 
facilitate  and  abridge  labor  in  all  its  departments.  Because 
the  simple  task  which  complete  division  of  labor  gives  to 
each  operator  is  precisely  what  machinery  may  most  easily 
be  made  to  perform,  and  what  the  operator,  if  intelligent, 
will  be  most  likely’  to  devise  machinery  for.  Add  to  these 
advantages  of  the  division  of  labor  these  other :  — 

(d)  The  saving  of  the  waste  of  material,  partly  as  the 
result  of  this  improved  dexterity  ;  and  frequently,  also,  as 
the  result  of  the  shorter  time  required  to  finish  up  the  prod¬ 
uct. 

(e)  The  more  economical  distribution  of  labor  by  classing 
the  operatives  according  to  their  strength,  skill,  and  expe¬ 
rience.  The  easier  parts  may  be  performed  by  women  and 
by  children,  whose  labor  is  less  expensive  ;  the  ruder  parts 
by  ruder  hands  ;  and  only’  the  more  difficult  processes  by’  the 
most  skilful  workmen,  who  must  be  highly  paid.  Next  to 
the  first,  this  advantage  is  the  most  important. 

(/)  There  is  a  saving  in  tools.  The  various  implements, 
being  now  in  constant  use,  yield  a  better  return  for  their 
original  cost ;  and  therefore  their  owners  can  afford  to  have 


PRODUCTION. 


189 


them  of  a  better  quality,  and  this,  too,  facilitates  produc¬ 
tion. 

(g)  It  brings  the  producers  and  consumers  into  more  inti¬ 
mate  and  safe  relations.  The  division  of  labor  between  the 
wholesale  and  the  retail  trade  is  of  great  advantage.  The 
retailers  know  their  local  markets,  and  supply  them  without 
loss  or  waste  from  the  wholesale  reservoirs.  The  wholesale 
reservoirs  neatly  control  the  various  streams  of  production, 
according  as  demand  is  slackened  or  intensified.  Thus,  for 
example,  a  large  city  is  daily  supplied  with  fresh  meat,  with¬ 
out  the  loss,  perhaps,  of  a  hundred  weight. 

There  are  some  disadvantages  resulting  from  this  division 
of  labor :  — 

(a)  The  work  becomes  in  some  departments  monotonous 
and  irksome,  while  some  variety  of  occupation  would  afford 
relief  by  employing  different  muscles,  or  different  faculties 
of  the  mind. 

( b )  There  is  some  tendency  to  dwarf  the  mental  and  cor¬ 
poreal  powers,  through  exclusive  attention  to  one  part  only 
of  a  complicated  process. 

(c)  When  this  part  has  been  learned,  and  long  made  the 
means  of  a  livelihood,  a  person  has  less  power  to  adapt  him¬ 
self  to  change  of  circumstances,  and  becomes  too  much 
dependent  on  the  continuance  of  the  business  in  that  form. 

The  degree  to  which  the  division  of  labor  can  be  carried, 
depends  in  part  upon  the  extent  of  the  market,  and  in  part 
upon  the  nature  of  the  employment.  To  recur  to  Dr.  Smith’s 
illustration  of  the  pins :  if  the  market  would  only  have 
received  24,000  pins  a  day  from  that  establishment,  instead 
of  48,000,  the  division  of  labor  could  not  have  been  carried 
to  the  same  extent,  because  if  it  had  been,  the  men  would 
be  idle  one-half  the  time.  In  that  case,  some  of  the  men 
would  be  dismissed,  and  some  of  the  separate  processes  bo 
combined,  and  production  would  be  less  efficient  from  the 
limitation  of  the  market.  Production,  therefore,  is  most 
profitable  when  the  market  is  broad  enough  to  allow  a  full 


190 


POLITICAL  ECONOMY. 


division  of  lalor,  and  complete  employment  to  ail  the  opera¬ 
tives ;  and,  the  market  being  presupposed,  is  moie  likely  to 
be  profitable  in  large  establishments  than  in  small ;  because, 

(а)  the  division  of  labor  can  be  carried  to  a  fuller  extent ; 

(б)  more  perfect  machinery  can  be  afforded  ;  (c)  relatively 
less  superintendence  is  required ;  and  (d)  the  scraps  and 
ends  of  a  large  business  are  frequently  of  sufficient  impor¬ 
tance  to  justify  one  or  more  subordinate  branches  of  busi¬ 
ness  in  connection  with  the  main  business.  For  example,  a 
large  saw-mill  may  profitably  furnish  lath  as  well  as  lumber, 
since  the  refuse  boards  and  slabs  may  go  to  lath.  A  whole¬ 
sale  butchering  establishment  of  neat  cattle  might  profitably 
have,  in  connection  with  the  sale  of  meat,  a  tannery  to  dis¬ 
pose  of  the  hides,  a  comb  manufactory  to  dispose  of  the 
horns,  a  glue  manufactory  to  dispose  of  the  feet,  a  stall  for 
the  hair,  which  is  useful  in  plastering,  while  the  offal  might 
be  chemically  disposed  of  in  fertilizers. 

The  nature  of  the  employment  also  limits  the  degree  to 
which  the  division  of  labor  may  be  carried.  Agriculture, 
for  instance,  allows  less  of  this  division  than  most  other 
departments  of  production,  because  its  various  operations 
cannot,  from  the  nature  of  the  case,  become  simultaneous. 
When  the  sowing  is  once  done,  the  producer  must  wait  some 
months  upon  Nature,  till  his  agency  is  again  required  in  the 
reaping.  This  fact,  that  agriculture  can  be  less  facilitated 
by  the  division  of  labor,  and  by  the  use  of  machinery,  than 
most  other  departments  of  material  production,  constitutes 
one  ground  of  an  important  truth,  which  we  shall  hereafter 
perceive  stands  also  on  another  and  firmer  ground,  the  truth, 
namely,  that  agricultural  products  tend  constantly  to  rise  in 
value  as  compared  with  other  commodities. 

7.  Opposed  to  free  Production,  and  therefore  opposed  to 
progress  and  to  comforts,  are  Monopolies.  A  monopoly,  as 
the  derivation  of  the  word  implies,  is  a  restriction  imposed 
by  a  government  upon  the  sale  of  certain  Services.  A  gov¬ 
ernment  may  properly  restrict  or  even  wholly  prohibit  the 


PRODUCTION. 


191 


sale  of  any  services  that  clearly  threaten  the  public  health  or 
the  public  morals ,  because  these  are  of  higher  consequence 
to  individuals  and  the  State  than  the  pecuniary  gains  of  any¬ 
body  ;  it  is  in  this  view  that  the  United  States  forbid  utterly 
the  introduction  from  abroad  of  obscene  books  and  pictures, 
and  the  States  forbid  the  sale  of  tainted  meat ;  and  when  a 
nation  has  determined  to  raise  a  revenue  from  the  sale  of  any 
commodity,  as  for  instance  tobacco,  it  may  properly  restrict 
the  sale  to  its  own  authorized  agents,  or  to  those  who  buy 
its  licenses  and  stamps  ;  but  outside  these  three  exceptions 
in  the  interest  of  morals,  health,  and  revenue,  no  government 
would  seem  to  have  the  right  or  any  adequate  motive  to 
restrict  the  sale  of  any  thing.  Monopolies  become  a  public 
wrong  and  are  justly  denounced  whenever  they  are  instituted 
for  the  benefit  of  a  part,  at  the  expense  of  another  part ,  of 
Society.  During  long  centuries  the  older  governments  med¬ 
dled  with  and  vexed  the  freedom  of  production,  at  the 
instance  of  individuals  and  classes  wishing  to  be  arbitrarily 
privileged,  and  thus  threw  arbitrary  burdens  on  other  classes 
of  the  people,  for  example,  by  limiting  the  number  of  ap¬ 
prentices  to  each  artisan,  by  dictating  what  should  and  what 
should  not  be  manufactured  or  grown,  and  by  trying  to  fix 
what  should  and  what  should  not  be  imported  and  exported ; 
but  common  sense  has  come  to  reign  now  for  the  most  part 
within  the  limits  of  the  individual  nations,  which  perceive  that 
riches  and  progress  and  power  are  dependent  on  free  produc¬ 
tion  within  their  own  boundaries ;  while  common  sense  and 
perception  are  not  }7et  enough  enlarged  to  secure  free  produc¬ 
tion  as  between  the  different  nations.  Senior  (p.  177)  uses 
this  illustration:  When  Napoleon  brought  half  of  West  Eu¬ 
rope  under  French  dominion,  the  previously  existing  custom¬ 
houses  and  toll-barriers  of  the  interior  fell  as  by  a  stroke, 
and  free  trade  became  the  rule  between  French,  Dutch,  Ger¬ 
mans,  Italians,  and  Spaniards,  —  all  indeed  who  were  sub¬ 
ject  to  his  sway;  but  when  this  vast  empire  was  dissolved 
into  its  original  independent  kingdoms,  each  State  was  busy 


192 


POLITICAL  ECONOMY. 


to  re- impose  on  itself  the  fetters  which  his  powerful  hand  had 
broken,  and  the  custom-houses  shot  up  again  around  all  the 
petty  frontiers.  Just  as  if  the  benefits  of  exchange  depended 
in  the  least  on  the  accident  that  the  parties  to  it  are  subjects 
or  citizens  of  the  same  government ! 

If  we  reckon  those  restrictions  on  sale  by  which  the  public 
morals  and  health  are  sought  to  be  conserved  and  a  public 
revenue  secured  a  first  and  worthy  form  of  monopoly,  as 
tobacco  has  long  been  in  France  a  close  monopoly  for  reve¬ 
nue  purposes,  then  the  second  and  a  most  unworthy  form 
may  be  illustrated  by  the  monopolies  of  Queen  Elizabeth. 
She  called  the  power  of  granting  patents  of  monopoly  to  her 
favorites  u  the  fairest  flower  of  her  garden.”  The  privilege 
granted  was  an  exclusive  right  to  deal  in  certain  articles  of 
common  use,  which  of  course  limited  competition  in  their 
sale,  and  raised  artificially  the  value  of  whatever  the  privi¬ 
leged  few  offered  for  sale.  If  the  view  be  limited  to  these 
persons  alone,  monopolies  would  certainly  seem  to  be  advan¬ 
tageous  ;  but  is  it  not  fair  to  look  also  at  the  buyers  of  these 
monopolized  wares?  They  are  all  obliged  to  pay  more  of 
their  return  service  than  is  natural  and  just,  since  the  only 
purpose  in  granting  the  patent  was  to  raise  values  in  behalf 
of  the  privileged.  The  English  people  did  not  like  the  work¬ 
ing  of  it.  Towards  the  close  of  the  reign  the  abuse  of  this 
power  reached  an  intolerable  height,  and  many  of  the  most 
necessary  articles  of  life,  such  as  salt,  iron,  calf-skins,  vine¬ 
gar,  lead,  and  paper,  were  in  the  hands  of  patentees,  and 
could  only  be  bought  at  exorbitant  prices.  In  1601,  the 
House  of  Commons  met  in  so  angry  and  menacing  a  mood, 
in  consequence  of  this  abuse,  that  Elizabeth  was  obliged  to 
promise  at  least,  that  the  monopolies  complained  of  shou]  1 
be  abolished.  The  famous  Act  of  Parliament  of  1621  de¬ 
clares  that  all  monopolies,  grants,  letters  patent  for  the  sole 
buying,  selling,  and  making  of  goods  and  manufactures, 
shall  be  null  and  void.  This  Act  effectually  secured  the 
freedom  of  industry  in  England ;  and  in  the  opinion  of  ex- 


PRODUCTION. 


193 


cellent  authorities,  has  done  more  to  excite  the  spirit  of 
invention  and  industry,  and  to  accelerate  the  progress  of 
riches  in  that  country,  than  any  other  in  the  statute  book. 
The  Act  excepts,  however,  patents  for  fourteen  years  to 
the  true  and  first  inventors  of  new  manufactures  within  the 
realm,  and  also  the  grants  by  Act  of  Parliament  to  any  com¬ 
pany,  for  the  enlargement  of  foreign  trade.  Under  this 
exception,  the  East  India  Company  possessed,  up  to  1834, 
the  exclusive  right  to  vend  tea  in  England.  During  the  last 
years  of  this  monopoly,  and  notwithstanding  the  quantities 
of  tea  smuggled  into  the  country,  the  people  of  England 
paid  more  than  $7,500,000  a  year  for  their  tea  beyond  the 
price  at  which  tea  of  equal  quality  was  sold,  under  a  system 
of  free  competition,  in  Hamburg  and  New  York.  It  is  well 
worth  notice,  that  monopolies  never  realize  to  their  pos¬ 
sessors  the  full  pecuniary  advantage  of  which  the  public  are 
robbed  by  their  action.  Thus,  while  Englishmen  paid 
$7,500,000  extra  annually  for  their  tea,  the  Company,  by 
their  own  showing,  did  not  realize  much  more  than  half  that 
sum  from  their  privilege ;  owing  to  the  inertness  of  their 
servants  removed  from  the  stimulus  of  competition.  “  The 
spirit  of  monopolists,”  says  Gibbon,  “  is  narrow,  lazy,  and 
oppressive.  Their  work  is  more  costly  and  less  productive 
than  that  of  independent  artists  ;  and  the  new  improvements, 
so  eagerly  grasped  by  the  competition  of  freedom,  are  ad¬ 
mitted  b}r  them  with  slow  and  sullen  reluctance.” 

A  third  form  of  monopoly  (also  most  unworthy)  is  that  in 
which  governments  by  restrictive  duties  try  to  exclude  foreign 
competition  in  certain  articles,  leaving  the  domestic  dealers 
open  only  to  home  competition.  This  is  done  in  connection 
with,  sometimes  under  color  of,  levying  duties  for  revenue. 
Duties  laid  for  this  purpose,  however,  as  we  shall  see  more 
fully  hereafter,  are  very  different  in  principle,  amount,  and 
action,  from  those  properly  laid  for  revenue.  They  violate 
a  natural  right  of  exchange,  as  the  others  do  not,  and  are 
always  followed  by  injurious  consequences.  Sometimes  the 


194 


POLITICAL  ECONOMY . 


hope  of  unusual  gains  from  producing  an  article  whose  for¬ 
eign  supply  is  thus  restricted,  seduces  capital  and  labor  from 
other  profitable  channels  and  concentrates  them  upon  this 
business  ;  and  the  home  competition,  thus  artificially  stimu¬ 
lated,  becomes  intense  and  feverish,  the  business  is  over¬ 
done,  an  element  of  distrust  and  unsteadiness  is  introduced, 
the  weaker  houses  are  ruined,  and  only  the  stancher  firms 
tide  over  the  depression  consequent  upon  overdoing,  and 
control  the  market  for  a  while  at  a  monopoly  price.  But 
the  losses  of  home  competitors ;  the  losses  of  those  who 
would  otherwise  have  been  foreign  competitors  ;  and  espe¬ 
cially  the  losses  of  those  home  producers  who  would  have 
exchanged  products  with  those  foreign  competitors,  overbal¬ 
ance  many  fold  these  gains.  Sometimes,  again,  home  com¬ 
petition  is  even  less  active  after  the  imposition  of  such 
duties  ;  and  then  the  manufacturers  and  dealers,  relieved, 
in  great  measure,  from  the  stimulus  of  competition,  are  less 
on  the  alert  for  improvements,  less  attentive  to  the  quality 
of  their  goods,  less  compliant  to  their  customers  ;  and  the 
consumers  are  obliged,  not  only  to  pay  a  tax  levied  for  the 
benefit  of  the  monopolists,  but  also  an  additional  tax  on 
account  of  their  want  of  enterprise  and  spirit. 

A  fourth  form  of  monopoly,  and  like  the  first  a  worthy 
one,  is  that  involved  in  the  granting  of  patent-rights  and  copy¬ 
rights.  Society  does  well  in  protecting,  by  law,  inventors 
and  thinkers  in  the  sole  use  of  their  respective  productions 
for  a  limited  time.  Otherwise,  men  would  have  less  motive 
to  think  and  to  invent ;  since  in  that  case  only  the  public 
spirited  and  the  rich  would  or  could  devote  themselves  to  an 
important  branch  of  the  public  progress.  A  patent  or  copy¬ 
right  is  merely  a  return  service  which  society  renders  for  a 
service  received.  It  violates  no  man’s  right  of  property,  as 
an  ordinary  monopoly  does,  but  is  a  provision  to  protect  for 
a  time  a  new  right  of  property  created  by  the  thought  and 
efforts  of  deserving  men.  It  has  sometimes  been  improperly 
called  intellectual  property,  in  contradistinction  from  material 


PRODUCTION. 


195 


property,  because  the  right  is  not  embodied  in  any  outward 
thing,  but  remains  a  right  only ;  it  is  true,  that  Political 
Economy  has  not  hitherto  given  to  this  whole  class  of  valua¬ 
ble  things  the  attention  that  is  undoubtedly  their  du*e  ;  but 
we  have  already  seen  that  any  thing  is  property  that  can  be 
bought  and  sold,  and  that  simple  rights  are  constantly  bought 
and  sold  in  the  markets  ;  and  it  follows  from  all  this,  that 
patents  and  copyrights,  which  are  a  technical  return-service 
for  services  ready  to  be  rendered  to  the  community,  are  at 
once  proper  and  property ,  since  they  themselves  also  are 
bought  and  sold. 

In  the  United  States  a  patent  lasts  for  seventeen  years, 
and  is  not  re-issued,  except  by  a  special  act  of  Congress : 
i  copyright  lasts  for  twenty-eight  years,  and  may  be  re- 
dewed  by  the  author,  his  widow,  or  children,  for  fourteen 
/ears  longer. 

A  patented  process  is  almost  always  the  application  in 
some  new  wa}r  of  a  gratuitous  force  of  Nature  to  some  use¬ 
ful  and  valuable  end.  Through  inventors,  free  forces  are 
constantly  harnessed  to  the  use  of  Production.  Services 
become  easier,  and  therefore  cheaper,  in  all  directions. 
Take  a  case  in  illustration  in  which  machinery  can  only  be 
used  in  a  limited  degree,  and  in  which  hand-labor  must 
always  be  a  main  element,  namely,  work  in  anthracite  coal 
collieries : 1  the  average  increase  of  hands  in  these  collieries 
in  the  United  States  from  1870  to  1880  was  only  6.4  %, 
while  the  average  increase  of  product  in  the  same  time  was 
45  °lo.  If  then,  patents  stimulate  inventions,  and  inventions 
lessen  efforts  and  multiply  results,  patents  are  to  be  com¬ 
mended  ;  and  it  is  a  beautiful  consequence  of  individual 
eagerness  to  invent,  which  is  perhaps  more  common  in  this 
country  than  in  any  other,  that  all  improvements  in  ma¬ 
chinery,  all  inventions,  all  substitution  of  Nature’s  forces  for 
human  labor,  soon  become  the  common  property  of  mankind. 
Patent  rights  speedily  expire  by  their  own  limitation,  secret 


1  Census  of  1880. 


196 


POLITICAL  ECONOMY. 


processes  are  sure  to  become  known,  and  the  competition 
of  the  different  men  who,  under  a  system  of  freedom,  will 
be  sure  to  use  these  gratuitous  helps,  will  compel  each  of 
them  to  sell  their  product  at  a  rate  graduated  only  by  the 
actual  human  service  rendered ;  so  that,  the  liberal  gifts  of 
Nature,  though  seemingly  monopolized  at  first  by  ingenious 
men,  are  not  long  intercepted  in  their  descent  towards  the 
masses  of  mankind.  An  invention  of  great  merit  even  at 
first  does  not  benefit  the  patentee  alone ;  as  a  patentee,  his 
interest  leads  him  to  lower  the  price  of  his  product,  to  bring 
it  within  the  reach  of  a  wdder  circle  of  consumers ;  and  so 
soon  as  the  patent  has  expired,  the  benefit  has  at  once  a 
wider  reach.  The  steam-engine,  for  example,  has  long  been 
common  property.  There  are,  indeed,  certain  features  of 
the  more  perfect  engines  still  restricted  in  their  manufacture 
by  the  rights  of  individuals,  and  this  will  always  be  so  while 
invention  continues  busy,  but  the  perpetual  tendency  in  all 
inventions  is  from  individual  property  towards  a  common 
right.  And  it  is  here  in  place  to  remark,  that  the  applica¬ 
tion  of  machinery  to  all  departments  of  production,  and  the 
introduction  of  improved  processes  of  every  name,  can 
hardly  in  the  first  instance  be  prejudicial  to  any,  and  are 
sure  ultimately  to  be  beneficial  to  all. 

8.  The  natural  laws  of  Production  are  inexorable  in  their 
operation.  It  is  best  for  men  to  find  out  what  these  are, 
and  then  to  conform  to  them  their  own  economic  action.  If 
custom  or  legislation  thwart  these  laws,  they  will  take  their 
revenge  without  pity,  and  lapse  of  time  will  only  exhibit 
transgressors  more  clearly  as  firmly  held  in  the  grip  of  vio¬ 
lated  law.  Nature  prescribes  to  men  the  way  to  reach  the 
best  economic  ends,  by  giving  to  all  a  consciousness  of 
rights  and  impulses  to  maintain  them,  though  it  must  be 
owned  that  there  are  impulses,  too,  to  infringe  upon  rights, 
and  also  by  giving  that  common  sense  by  which  mistakes 
are  perceived  and  a  sound  experience  gained  ;  and  the  result 
of  the  pla}'  of  all  these  for  couutless  generations  is  expressed 


PRODUCTION. 


197 


in  such  maxims  as,  Live  and  let  live,  A  fair  field  and  no 
favor,  Honesty  is  the  best  policy,  It  takes  two  to  make  a 
bargain,  and  Laissez  faire.  Still,  each  generation  shoots 
up  a  lusty  crop  of  foolish  and  selfish  men,  foolish  because 
selfish,  and  selfish  because  foolish,  who  think  they  know,  how 
things  had  best  be  done,  how  Nature  can  be  improved  upon, 
and  how  those  who  trust  themselves  to  them  will  be  better 
off  than  if  they  trusted  to  their  own  sense  of  fair  and  right. 
Such  men  and  their  followers  —  ‘ 4  blind  leaders  of  the  blind  ’  ’ 
—  so  far  and  so  long  as  they  have  their  way,  get  caught  in 
the  meshes  of  laws  as  old  as  the  creation,  and  the  more  they 
struggle  to  evade  and  escape,  the  more  they  show  forth  their 
own  helplessness,  and  the  magnitude  and  wisdom  and  power 
of  the  natural  laws  they  have  trampled  on. 

An  excellent  illustration  of  all  this  is  found  in  the  state 
of  the  shipping  of  the  United  States  in  the  year  of  grace 
1881,  and  in  the  contortions  of  the  men  who  tried  to  justify 
the  false  system  that  had  brought  forth  such  fruits.  It  must 
be  premised,  that  there  were  three  things  only  which  the 
citizens  of  this  country  were  absolutely  forbidden  to  buy 
from  abroad,  namely,  obscene  prints,  drugs  prepared  to  pre¬ 
vent  conception  or  secure  abortion,  —  and  ships.  The  first 
two  were  prohibited  in  the  interest  of  morals,  and  that  wras 
right  enough ;  but  why  were  free  American  citizens  prohib¬ 
ited  to  buy  innocent  ships  wherewith  to  sail  the  seas,  if  they 
found  it  for  their  profit  to  buy  them  ?  Why,  nothing,  only 
to  encourage  the  same  people  to  build  ships  of  their  own  ! 
In  order  to  have  ships  a  plenty,  and  make  it  profitable  to 
build  them,  the  competition  of  foreigners  in  ship-building 
was  wholly  cut  off  by  one  of  the  first  laws  passed  under  the 
present  constitution,  that  is,  in  1789,  to  exclude  foreign-built 
ships  from  registry  under  the  American  flag;  and  after 
almost  a  century  of  such  continuous  exclusion,  during  which 
native  ship-building  was  not  onl}'  “  protected”  but  perfectly 
“protected,”  since  prohibition  is  the  perfection  of  protec¬ 
tion,  the  fruits  of  such  a  system  would  certainly  have  time 


198 


POLITICAL  ECONOMY. 


to  work  themselves  out.  If  such  legislation  were  in  accord¬ 
ance  with  the  natural  laws  of  Production,  the  results  would 
he  good  ;  if  contrary  to  them,  bad.  Well,  then,  what  was  the 
state  of  ocean  ship-building  and  ocean  carrying,  so  far  as  the 
United  States  were  concerned,  in  1881  ?  What  had  been 
that  state  for  the  two  decades  preceding?  Before  answering 
this  question  in  figures,  we  must  premise  also,  that  that  ship¬ 
building  had  been  carried  on  vigorously  in  this  country  for 
150  years  prior  to  1789,  not  only  without  any  44  protection  ” 
to  encourage  it,  but  also  in  spite  of  the  unceasing  hostility 
of  the  British  Government  towards  colonial  shipping ;  how 
far  all  the  arts  of  navigation  had  been  carried  here  before 
the  Be  volution,  any  one  may  read  in  Burke’s  famous  speech 
on  Conciliation  with  America ;  and  how  far  the  products  of 
the  loom,  the  forge,  and  the  anvil,  were  already  exported 
on  native  ships  to  other  countries,  in  spite  of  British  legisla¬ 
tion,  any  one  may  see  in  Lord  North’s  last  proposals  and 
concessions  to  ward  off  the  Bevolution.  Probably  ships 
could  be  built  here  as  cheaply  in  money  as  in  Europe  till  the 
middle  of  this  century,  and  the  main  effects  till  then  of 
the  prohibition  were  the  loss  of  a  market  for  such  native 
products  as  would  otherwise  have  been  sold  against  ships, 
and  the  loss  of  the  stimulus  of  competition  on  our  own 
ship-builders  that  would  have  accompanied  free  ships  ;  but 
in  the  twenty  years  after  1861,  when  a  general  protective 
system ,  with  duties  far  higher  than  ever  before,  prevailed, 
it  became  practically  impossible  to  build  ocean  ships  in  this 
country  on  account  of  the  protective  duties  on  lumber, 
cordage,  iron,  steel,  and  other  materials ;  so  that  the  free 
citizens  of  the  United  States,  fond  of  the  sea,  found  them¬ 
selves  in  a  humiliating  position,  in  which  it  was  illegal  to 
buy  ships,  and  impossible  to  build  them. 

What  was  the  outcome  of  this  dilemma?  The  exports  of 
the  fiscal  year  ending  June  30,  1881,  were  $902,377,346, 
of  which  only  twelve  per  centum  was  carried  away  under  the 
American  flag,  and  88  %  under  foreign  flags.  The  imports 


momrcTioN. 


109 


of  tli at  year  were  $642,664,028,  of  which  only  $133,781,000 
were  brought  in  by  onr  own  ships,  and  $491,000,000  were 
brought  in  foreign  vessels,  and  $17,933,628  came  in  on  cars 
and  other  vehicles.  Of  the  total  foreign  trade  of  that  year 
mediated  by  ships,  very  nearly  15  %  was  by  American  ships, 
and  85  %  by  foreign  ships.  According  to  the  authority  of 
Senator  Blaine,  our  own  ships  carried  in  1857  72  %  of  our 
total  foreign  trade,  leaving  28%  to  foreigners;  in  1878 
these  figures  had  become  almost  exactly  reversed,  less  than 
28  %  was  native  and  more  than  72  %  was  foreign.  This 
disproportion  grew  worse  and  worse,  till,  in  1881,  the  result 
above  mentioned  was  attained.  All  this  time  protectionists 
were  praising  their  system,  though  sorely  perplexed  by  the 
results  of  it  in  ship-building,  in  which  the  system  had  been 
carried  to  its  highest  terms  for  the  longest  time.  A  vio¬ 
lated  law  of  Production  held  them  and  the  whole  country 
in  its  grasp,  and  irrefutable  figures  growing  worse  from  year 
to  year  exhibited  in  the  face  of  the  world  their  system  and 
all  its  defences  as  refuges  of  lies.  The  world  of  economic 
law  cannot  be  cajoled,  manipulated,  and  falsified.  Causes 
will  produce  their  effects,  restrictions  will  end  in  scarcity, 
and  the  successful  selfishness  of  a  few  will  bring  in  wide 
disaster  to  the  many.  One  of  the  odd  things  of  that  odd 
year,  1881,  was  the  ostentatious  advertisement  of  a  promi¬ 
nent  protectionist  firm  of  sliip-builders  on  the  Delaware,  that 
they  could  and  would  furnish  iron  ships  as  good  and  as 
cheap  as  those  built  on  the  Cl}Tde ;  which,  if  it  were  true, 
cut  off  all  possible  explanation  of  the  decline  of  ship-build¬ 
ing  on  the  ground  of  higher  wages,  or  any  other  natural  cir¬ 
cumstances  of  the  country.  Another  odd  thing  of  that  year, 
was  the  bringing  into  New  York  harbor  the  obelisk,  known 
as  Cleopatra’s  Needle,  by  Commander  Gorringe  on  a  for¬ 
eign-built  ship  bought  by  him  for  that  purpose,  for  which 
consequentl}'  he  could  not  legally  take  out  American  papers, 
and  which  accordingly  made  the  whole  voyage  home  in  the 
character  of  a  pirate  :  any  man-of-war  could  have  overhauled 


200 


POLITICAL  ECONOMY. 


her  at  sea  and  taken  her  and  the  obelisk  into  port  as  a  prize ; 
for  the  Dessong  had  no  authenticating  papers  at  all  but  a 
bill  of  sale.  Still  another  odd  thing  of  that  year,  was  the 
publication  at  great  expense  by  the  government  of  special 
reports  of  our  consuls  in  all  parts  of  the  world,  set  on  foot 
by  Mr.  Secretary  Evarts  on  purpose  to  facilitate  trade  be¬ 
tween  this  and  other  countries,  while  the  general  tariff  of 
this  country  was  expressly  designed  and  constructed  to  pre¬ 
vent  trade  with  other  countries. 

The  number  of  vessels  plying  between  the  United  States 
and  Europe  in  1881  was  5,210,  of  which  555  were  steam¬ 
ships.  Of  the  sailing  vessels  the  United  States  had  in  num¬ 
ber  10%,  though  their  tonnage  was  less  than  the  average, 
while  the  little  hyperborean  kingdom  of  Sweden  had  22  <f0. 
Of  the  steamships  80  %  were  British,  and  the  United  States 
had  just  four  and  no  more.  Between  1792  and  1881,  by 
act  of  Congress  of  the  former  date,  all  foreign-owned  ves¬ 
sels  were  excluded  from  the  American  coasting  trade,  and, 
consequent^ ,  coasters  must  he  built  at  home,  or  coast  navi¬ 
gation  cease.  Within  monopoly  waters,  our  flag  floated  ;  on 
the  free  seas,  it  mostly  disappeared. 

The  great  struggles  of  mankind  in  all  history  past  have 
been  around  three  points  as  centres :  first,  freedom  of  per¬ 
son  ;  second,  freedom  of  opinion ;  third,  freedom  of  ex¬ 
change.  In  consequence  of  the  struggle  around  the  first 
point,  personal  slavery  has  now  mainly  disappeared  from 
the  earth  ;  in  consequence  of  the  struggle  around  the  second 
point,  the  freedom  of  opinion,  and  especially  of  religious 
opinion,  has  gained  great  victories  in  all  lands,  although 
much  remains  to  be  done  before  its  complete  triumph  is 
assured ;  while,  in  consequence  of  the  struggle  around  the 
third  point,  one  barrier  after  another  has  been  thrown  down, 
one  monopoly  after  another  has  been  conquered,  until  it  is 
pretty  generally  acknowledged  at  present  that  freedom  of 
exchange  is  just  as  sacred  as  freedom  of  person  and  of 
opinion,  and  the  struggle  will  certainly  never  cease  until  tho 


PRODUCTION. 


201 


liberty  of  contract  and  delivery,  subject  only  to  conditions 
of  morals,  health,  and  revenue  shall  be  international  and 
universal. 

If,  in  this  chapter,  attention  has  been  more  strongly 
drawn  to  commodities  than  to  the  other  two  classes  of 
valuable  things,  it  is  not  because  the  man  who  sells  a  mere 
effort  is  less  a  producer  than  a  farmer  or  a  manufacturer,  nor 
because  a  banker,  for  example,  is  less  a  producer  than  either 
of  them.  It  is  because  the  principles  are  more  readily  seen 
and  simply  illustrated  in  the  production  of  material  things. 
The  same  principles  apply  equally  to  mere  labor  and  the 
sale  of  intangible  rights.  We  can  see  their  application  to 
these,  however,  better  at  a  later  stage  of  our  inquiries. 
Labor  will  be  considered  at  length  in  the  next  chapter ;  and 
Credit,  which  best  represents  the  whole  class  of  technical 
rights,  will  be  fully  treated  still  further  on.-  In  the  mean 
time,  the  propositions  of  this  chapter  may  be  summarized 
thus : — 

1.  Production  is  the  getting  something  ready  to  sell  and 
selling  it. 

2.  Production  is  immense  in  amount  as  measured  by 
money. 

3.  All  production  is  facilitated  by  God’s  free  gifts,  a7id, 
accordingly ,  grows  constantly  easier. 

4.  Production  always  depends  on  diversity  of  relative  ad¬ 
vantage  as  between  the  parties  exchanging. 

5.  The  greater  this  diversity ,  the  more  profitable  do  ex¬ 
changes  become. 

6.  Association ,  Invention ,  Freedom ,  are  the  grand  condi¬ 
tions  of  Production. 

7.  Inventions  increase  production ,  but  tend  to  lessen  the 
value  of  particular  services. 

8.  There  can  be  no  glut  of  general  services. 

9.  All  production  tends  more  and  more  to  specialties. 

10.  Exchanges  should  be  free  because  they  are  natural  and 
beneficial. 


202 


POLITICAL  ECONOMY . 


11.  Monopolies ,  as  a  class ,  lessen  production ,  arccf  impede 
progress. 

12.  The  laws  of  Production  are  inexorable ,  ancZ  adequate 
for  their  own  vindication. 

13.  Governments  are  less  guilty  than  formerly  of  curtailing 
exchanges . 


LABOR. 


203 


CHAPTER  V. 

LABOR. 

Production  is  processes  leading  up  to  Value  ;  there  are 
three  essential  elements  in  these  processes ;  and  these  are 
Labor,  Capital,  and  Natural  Agents.  In  all  production 
these  three  conspire  ;  and  we  must  now  take  them  up  one 
by  one,  and  learn  carefully  how  each  acts  alone,  and  in 
conjunction  with  the  others.  We  take  up  Labor  first,  be¬ 
cause  it  is  first  in  point  of  importance  though  not  of  time, 
since  Nature  always  furnishes  in  some  primary  form  that 
upon  which  and  in  connection  with  which  Labor  expends 
itself.  Human  desires  are  presupposed  for  whatever  is 
produced,  and  the  only  other  requisites  of  production  are 
the  three  just  mentioned,  so  that  a  full  treatment  of  these 
will  exhaust  the  subject.  To  recur  to  our  strawberry-girl 
for  an  illustration,  —  Nature  furnishes  the  wild  strawberries 
free,  she  furnishes  the  Labor  of  picking  and  bringing  them, 
and  her  tin  pail  is  the  article  of  Capital  employed.  Or  to 
take  an  illustration  from  the  gold  hills  of  North  Carolina,  — 
a  bored  log  to  divert  the  water  from  a  mountain  stream,  and 
a  tin  pan  in  which  to  gather  and  wash  the  sand  and  gravel , 
are  Capital,  an  old  colored  woman  of  the  neighborhood  is 
the  Laborer,  and  the  bits  of  gold  scattered  in  the  soil  are  the 
gift  of  Nature :  gravitation  also  brings  the  water  through 
the  log,  and  gravity  carries  down  the  particles  of  gold  to  the 
bottom  of  the  washing-pan,  and  many  other  agencies  of 
Nature  co-operate  even  in  this  very  simple  case  of  produc¬ 
tion  ;  and  besides  the  log  and  pan,  there  are  doubtless  other 
forms  of  Capital,  at  least  the  whittled  plug  to  stop  at  need 


204 


POLITICAL  ECONOMY. 


the  flow  of  water ;  and  the  labor  is  both  physical  and  mental, 
since  no  animal  could  be  trained  to  adapt  means  to  ends 
like  this  negro  woman.  As  Production  passes  from  these 
simplest  forms,  each  of  its  three  requisites  becomes  more 
multiplied  and  complicated,  but  no  new  requisite  is  discov¬ 
ered.  Labor  in  all  its  grades  to  the  most  elaborate  is  still 
labor,  machinery  in  all  its  forms  to  the  most  ponderous  is 
still  Capital,  and  Nature  in  all  her  manifold  agencies  is 
nature  still. 

Personal  effort  of  any  kind ,  put  forth  in  view  of  a  return- 
service  and  for  the  sake  of  it ,  is  Labor. 

Effort  that  is  not  sold  is  not  labor.  Most  persons  put 
forth  some  efforts  every  day  for  their  own  direct  gratifica¬ 
tion,  which  of  course  are  not  labor ;  and  also  some  efforts 
for  the  direct  welfare  of  others,  for  which  nothing  is  ex¬ 
pected  in  return  ;  but  every  form  of  human  effort  exerted  for 
another  and  for  the  sake  of  the  pay  is  technically  Labor. 
We  sometimes  speak  in  the  way  of  contrast  of  physical  and 
mental  labor,  according  as  bod}r  or  mind  seems  the  main 
factor  in  the  exertion,  though  we  must  hold  fast  to  the 
truth  that  both  mind  and  body  work  as  one  in  every  act  of 
labor.  We  may  also  make  a  rude  distinction  for  the  sake 
of  convenience  between  common  and  skilled  and  professional 
labor,  though  no  very  sharp  lines  can  be  drawn  between 
these,  nor  need  be  drawn. 

It  is  a  curious  thing,  and  one  that  draws  after  it  important 
consequences,  that  what  we  call  physical  labor,  and  indeed 
all  ph\Tsical  effort,  consists  in  moving  things.  When  a  mail 
works  with  his  hands  or  his  feet,  all  that  he  does  or  can  do, 
is  to  produce  a  series  of  motions  or  resistances  to  motion, 
because  human  muscles  are  only  capable  of  producing  motion 
and  resisting  motion.  All  the  marvellous  results  of  physical 
effort  in  all  the  world  have  flowed  from  so  simple  a  matter 
as  the  contraction  and  expansion  of  muscle.  Physical  work 
is  motion,  and  weariness  is  weariness  of  muscle.  The  world 
of  materials  is  so  cunningly  constructed,  that,  when  they  are 


LAB  OB. 


205 


moved  into  light  position  by  the  aid  of  capital,  the  powers 
of  Nature  do  the  rest,  and  objects  of  utility  and  value  are 
the  result.  For  example,  when  the  woodman  fells  a  tree  for 
sole,  he  moves  (labor)  his  axe  (capital)  through  the  trunk, 
and  then  the  power  of  gravitation  (nature)  seizes  the  tree 
aud  brings  it  to  the  ground.  The  woodman  brings  a  series 
of  motions  to  bear  upon  the  tree,  but  the  final  motion  by 
which  the  oak  comes  crashing  to  the  earth  is  the  free  action 
of  nature. 

Let  us  take  two  other  illustrations.  Wool,  cotton,  and 
flax,  have  by  nature  a  certain  tenacity  of  fibre.  Man  moves 
these  fibres  in  certain  relations  to  each  other  by  an  instrument 
called  a  spindle,  and  the  result  is  thread.  Then  the  threads 
are  moved  in  certain  relations  with  each  other  by  an  instru¬ 
ment  called  a  shuttle,  and  the  result  is  a  web  of  cloth.  The 
tailor  moves  his  shears  through  the  cloth,  and  then  his  nee¬ 
dles,  and  the  result  is  a  coat, — the  object  of  utility  for 
which  all  these  processes  were  gone  through  with.  The 
farmer  first  moves  the  ground,  then  moves  his  seeds  into  it, 
moves  his  sickle  through  the  standing  corn,  moves  his  corn 
to  the  granaty  and  mill,  moves  his  meal  from  the  mill  to  the 
larder,  at  which  last  point  the  housewife  begins  to  operate 
upon  it  in  a  new  series  of  motions.  She  moves  the  meal  to 
the  kneading-trough,  and,  having  well  moved  it  there,  moves 
it  to  the  oven,  and,  from  the  oven,  after  due  interval,  moves  it 
to  the  table,  beyond  which  point  it  is  not  needful  for  us  to 
fodow  the  process. 

Now,  since  motion  is  the  only  thing  which  man  is  required 
t:  furnish  in  the  production  of  commodities,  he  naturally 
looks  around  for  helps  in  this  matter.  The  first  thing  lit! 
lighted  on,  as  a  help  to  produce  motion,  was  the  domestic 
animals.  The  ox,  the  ass,  the  horse,  were  doubtless  domes¬ 
ticated  in  the  very  beginnings  of  society.  Men  want  these 
animals  to  produce  motion  for  them  —  simply  that.  And  as 
they  can  be  used  in  so  many  different  places,  and  for  such 
a  variety  of  purposes,  and  are  so  cheaply  reared,  they  are 


206 


POLITICAL  ECONOMY. 


exceedingly  convenient  as  a  motive  power,  and  will  probably 
never  be  superseded.  The  discovery  and  application  of  the 
great  motive  powers  of  water  and  steam  have  scarcely  occa¬ 
sioned  a  lessened  demand  for  the  earlier  and  humbler  motors, 
oxen  and  horses.  Having  employed  from  a  very  early  time 
the  domestic  animals  as  a  motive  power,  Labor  secured  after 
a  while  as  inanimate  auxiliaries  the  water-wheel  and  wind¬ 
mill,  and  much  later  steam  and  electricity  and  other  natural 
agents.  It  is  a  point  that  has  scarcely  been  noticed,  even 
if  it  has  ever  been  noticed  at  all,  that  these  auxiliaries, 
whether  animate  or  inanimate,  do  but  cause  simple  motions 
of  the  same  kind  as  the  motion  caused  by  a  human  hand. 
The  most  ponderous  engine  merely  reduplicates  that  which 
the  arm  of  a  child  is  capable  of ;  while  in  point  of  delicacy 
and  firmness  of  touch,  perhaps  no  machinery  can  subdivide 
and  apply  this  motion  so  skilfully  as  the  human  fingers  can. 
It  is  said  that  some  of  the  lace  made  wholly  by  hand  is  finer 
and  more  delicate  than  any  yet  woven  by  machinery,  although 
the  introduction  of  machinery  into  lace-making  has  cheapened 
lace  products  in  general  to  a  small  fraction  of  their  former 
cost.  What  we  commonly  call  Power ,  then,  in  whatever  way 
created,  is  simple  motion.  But  in  order  to  subdivide  motions 
and  apply  them  to  the  various  purposes  of  production,  imple¬ 
ments  of  all  sorts  are  needed,  and  implements,  as  we  shall 
see  fully  in  the  next  chapter,  are  always  Capital.  Still,  no 
Power  however  mighty  or  however  delicate,  and  no  forms  of 
Capital  however  perfect,  can  ever  dispense  with  Labor.  Not 
until  machinery  can  be  taught  to  think  will  Labor  cease  to 
play  a  chief  part  in  production.  It  is  true  indeed,  that  men 
are  all  the  while  throwing  more  and  more  of  the  burden  of 
production  off  their  own  shoulders  upon  the  ever  willing 
shoulders  of  Nature,  who  is  “good,”  to  use  a  commercial 
term,  for  all  she  can  be  made  to  carry ;  but  the  more  natural 
agents  through  machinery  do,  the  more  there  is  for  men  to 
do  in  tending,  overseeing,  and  distributing,  so  that  labor  is 
in  as  great  demand  as  ever ;  just  as  horses  and  teamsters 


LABOR. 


207 


seem  now  as  mucli  required  as  before  railroads  and  steam- 
mills  came  into  use.  At  first  blush,  it  would  seem  as  if 
machinery  were  about  to  drive  men  off  the  industrial  field ; 
even  in  agriculture,  in  which  labor-saving  implements  can¬ 
not  be  used  to  the  same  extent  as  in  factories,  it  is  now  pos¬ 
sible,  instead  of  the  manifold  hand-motions  of  a  previous 
paragraph,  by  means  of  the  reaper  and  binder  and  thresher 
and  mill-appliances  and  baker’s  facilities,  “  to  direct  every 
process  in  the  production  of  bread,1  so  that  not  a  human 
hand  shall  have  touched  the  grain  from  the  time  it  was 
planted  until  it  is  placed  on  the  table  of  the  family  that 
consumes  it ;  ”  still,  the  making,  repairing,  aud  managing  of 
the  machines,  and  the  handling  of  the  vastly  greater  volume 
of  materials  and  products,  require  doubtless  more  men  than 
the  old  methods  demanded. 

Besides  what  we  have  roughly  called  physical  labor,  which 
always  has  to  do  with  motions  and  with  commodities,  there 
are  the  various  forms  of  mental  efforts  put  forth  by  men  to 
satisfy  the  desires  of  other  men  and  to  secure  some  return 
service.  These,  which  we  may  roughly  also  call  mental 
labor,  have  little  connection  with  motions  or  with  commodi¬ 
ties,  but  are  not  on  that  account  less  useful  or  less  valuable. 
Professional  labor,  that  is,  the  selling  of  personal  services 
separate  from  tangible  things,  depends  on  the  same  princi¬ 
ples,  gives  rise  to  the  same  phenomena,  and  is  amenable  to 
the  same  science,  as  all  other  selling.  One  man,  as  the 
violin -maker,  offers  services  in  which  a  commodity  inter¬ 
venes  ;  another,  as  the  violinist,  offers  services  in  which  no 
commodity  intervenes ;  each  has  gained  in  his  own  art  a 

1  point  of  relative  advantage  as  compared  with  other  men, 
and  these  doubtless  have  gained  some  point  of  relative 
advantage  as  compared  with  them  ;  each,  by  the  sale  of  his 
respective  service,  meets  some  desire  of  the  buyer,  and  is 
paid  on  the  same  principle  as  the  other.  The  violin-maker 
of  Cremona,  who  sold  his  instruments  for  live  hundred  francs 

1  Edward  Atkinson’s  Labor  and  Capital,  p.  28. 


208 


POLITICAL  ECONOMY. 


apiece,  was  no  more  and  no  less  a  laborer,  in  the  language 
of  our  science,  than  Paganini,  who  sold  an  hour’s  playing 
in  the  theatres  for  live  thousand  francs. 

Laborers ,  then,  are  a  very  large  class,  and  include  all 
persons,  who,  whether  statedly  or  occasionally,  put  forth 
personal  efforts  in  view  of  a  return  service  and  for  the  sake 
of  it.  The  Chief  Justice  of  the  Supreme  Court  of  the  United 
States,  is,  in  the  language  of  our  science,  just  as  much  a 
laborer  as  the  Irishman  who  is  cutting  sods  in  plain  sight  of 
my  window  at  this  moment ;  and  the  annual  salary  paid  to 
the  one  is  just  as  much  wages  as  the  daily  pay  rendered  to  the 
other :  the  Irishman  indeed  is  employed  and  paid  by  an  indi¬ 
vidual,  while  the  judge  is  employed  and  paid  by  the  whole 
people  of  the  United  States,  but  that  makes  no  difference 
between  them  as  laborers  and  wages-receivers.  Professor 
Walker  in  his  elaborate  and  in  many  respects  excellent 
“  Wages  Question”  (pp.  10,  206,  et  seq.)  denies  the  coinci¬ 
dence  between  the  labor-class  and  the  “  wages-class,”  and 
while  he  distinguishes  five  different  classes  of  laborers,  he 
finds,  after  much  painstaking  inquiry  and  many  exclusions, 
only  one  u  wages-class,”  and  that  a  comparatively  small  one. 
The  scientific  advantage  of  his  distinction  between  the  “  sal¬ 
ary-class  ”  and  the  “wages-class,”  and  of  his  many  other 
distinctions  in  this  connection,  is  not  very  obvious  from  our 
point  of  view ;  and  we  shall  regard  the  laborers-class  and 
the  wages-class  as  identical,  inasmuch  as  personal  services 
or  labor  are  always  put  forth  for  the  sake  of  the  return  ser¬ 
vice  which  is  wages,  although  the  same  person  is  often  at  the 
same  time  a  wages-giver  and  a  wages-receiver  in  respect  of 
different  transactions,  and  although  one  return  service  or 
gross  price  may  include  wages,  profit,  and  price  proper.  If 
a  man  sell  a  commodity  as  such  for  money,  the  return  is  its 
price;  if  he  sell  a  personal  service  as  such,  the  return  is  his 
wages ;  and  if  he  sell  the  use  of  a  credit-right  or  any  form 
of  capital,  the  return  is  his  profit ;  but  it  often  happens,  as 
with  a  merchant  selling  goods  over  his  own  counter,  thut  the 


LABOR. 


209 


price  of  the  commodity  includes  present  wages  of  the  seller 
and  the  current  rate  of  profit  on  the  capital  involved.  The 
merchant  is  laborer  and  capitalist  at  the  same  moment  in 
relation  to  the  same  commodity,  and  receives  in  its  price  his 
return  for  effort  and  abstinence  in  both  capacities.  Even 
Walker’s  small  class  of  wages- takers  are  also  at  times  indi¬ 
vidually  wages-givers.  The  commonest  day  laborer  is  often 
a  wages-payer  too,  since  he  must  have  his  doctor  when  sick, 
and,  if  a  church-goer,  contribute  something  to  his  preacher 
or  priest  for  his  support.  There  is  no  class  of  wages-takers 
only,  and  no  class  of  wages-givers  only,  and  it  seems  simpler 
and  better  to  regard  all  persons  as  laborers  so  far  forth  as 
they  render  personal  services  for  pay,  and  to  regard  even 
the  same  persons  as  capitalists  and  all  others  so  far  forth  as 
they  yield  the  use  of  valuable  things  for  further  production. 

Having  seen  what  labor  is,  and  who  laborers  are,  we  turn 
now  to  the  considerations  that  determine  in  general  the  value 
of  labor,  which  is  wages.  Now,  it  is  easy  to  see  by  a  little 
introspection  and  observation,  that  the  value  of  labor  in  all 
its  various  grades  depends  on  the  same  great  condition  as 
the  value  of  commodities  and  of  claims,  namely,  on  recipro¬ 
cal  demand.  Desires  and  efforts  rule  here  as  everywhere 
else  within  the  sphere  of  Exchange.  The  laborer  in  every 
grade  from  the  hod-carrier  to  the  President  is  able  to  sell  his 
service,  because  there  is  somebody  else  who  wants  that  par¬ 
ticular  service  and  is  willing  to  render  in  return  what  the 
laborer  wants.  The  labor-giver  works  for  a  reward,  and  the 
labor-receiver  finds  his  return  for  that  reward  in  the  labor 
itself.  This  reward  is  wages,  whether  received  in  money  or 
in  any  other  valuable  thing.  The  value  of  the  labor  is  the 
wages,  and  the  value  of  the  wages  is  the  labor.  It  is  the 
old  case  over  again.  It  is  a  true  and  free  exchange.  Soci¬ 
ety  is  so  constituted  —  it  always  has  been  and  always  will 
be  —  that  most  persons,  either  in  their  individual  or  in  their 
collective  capacity,  require  the  personal  service  of  others, 
and  are  able  to  render  a  satisfactory  return  service. 


210 


POLITICAL  ECONOMY. 


Now,  since  desires  and  efforts  determine  the  value  of  labor 
just  as  they  determine  the  value  of  every  thing  else,  and 
since  first  principles  really  control  every  thing,  because 
chance  effects  happen  now  on  one  side  and  now  on  the 
other,  and  leave  the  great  working  forces  unaffected,  it  is 
important  to  notice  that  laborers,  in  order  to  be  sucessful 
as  such,  must  study  the  desires  of  the  labor-takers,  and 
adapt  their  service  to  the  wants  of  those  from  whom  them 
wages  are  to  come.  This  is  the  first  and  most  important 
point  in  the  doctrine  of  wages.  The  more  perfectly  the 
desires  of  wages-payers  are  met  on  the  part  of  laborers,  the 
higher,  so  far  forth,  will  be  their  wages  and  the  more  secure 
their  employment.  The  wise  laborer  is  he  who  studies  his 
market ,  who  adapts  his  effort  to  present  and  prospective 
wants ,  who  makes  himself  necessary  to  his  employer  by  the 
excellence  of  his  service.  That  laborer  will  be  the  last  one 
discharged.  That  laborer’s  high  wages  will  not  be  grudged 
by  the  payer.  It  is,  then,  the  demand  for  labor,  that  is,  the 
desires  of  men  which  the  personal  service  of  other  men  can 
fill,  that  is  first  in  order  in  a  discussion  of  wages.  These 
desires  are  originally  very  various,  and  they  become  more 
varied  and  sensitive  as  civilization  advances ;  they  become 
exacting  and  precise  within  many  branches  of  industry ;  and 
they  become  scrupulous  within  many  fields  of  personal  grati¬ 
fication.  Hence,  intelligence  and  skill  and  patience  and  moral 
character  are  required  in  successful  laborers  of  all  grades. 
These  desires  are  to  be  met,  if  at  all,  by  an  intelligent  adap¬ 
tation  to  them  of  personal  services.  Political  Economy,  ac¬ 
cordingly,  calls  on  its  toilers,  not  for  muscular  exertions 
only,  but  for  mental  activities  also,  and  for  the  moral  virtues 
as  well,  that  the  toilers  may  meet  the  wants  of  even  the  most 
fastidious,  and  receive  their  reward.  It  calls  for  the  trained 
eye,  the  skilful  hand,  the  willing  and  waiting  effort,  the  com 
prehension  that  sees  what  is  needed,  and  the  honesty  that 
keeps  nothing  back.  Economics  are  far  enough  from  being 
materialistic  :  they  are  both  human  and  humane. 


LABOR. 


211 


While  the  demand  for  labor  is  first  in  order  as  determining 
wages,  the  supply  of  laborers  is  correlative  with  that  as  the 
next  most  important  element.  The  value  of  labor,  the  value 
of  commodities,  and  the  value  of  claims  are  each  controlled 
by  the  grand  law  of  Demand  and  Supply ;  and  it  is  now  our 
task  to  indicate  some  of  the  causes  that  affect  the  law  of 
demand  and  supply  of  labor,  and  thus  indirectly  affect  the 
law  of  wages.  So  far  as  the  supply  of  labor  is  concerned, 
the  first  interest  of  every  laborer  is  to  be  able,  so  far  as  it 
is  possible,  to  furnish  a  service  peculiar  to  himself  and  better 
than  anybody  else  can  furnish.  Instead  of  herding  with 
other  laborers  of  the  same  general  grade,  and  being  content 
with  rendering  a  service  averaging  with  theirs,  his  cue  should 
be,  to  be  able  to  do  something  better  in  some  respects  than 
any  of  them  can  do  it.  So  he  is  sure  just  to  meet  the  want 
of  some  wages-payer.  So  as  a  laborer  he  stands  on  his  oicn 
legs,  and  so  far  forth  is  able  to  dictate  his  own  wages,  that 
is  to  say,  to  sell  something  peculiar  to  himself  to  another 
who  prizes  its  quality.  The  more  the  laborer  can  put  into 
his  service  something  that  is  unique  in  the  way  of  excellence, 
the  more  sure  he  is  of  constant  and  remunerative  employ¬ 
ment,  partly  because  he  is  sure  to  find  somebody  who  wants 
such  a  service,  and  partly  because  he  is  exempted  from  the 
competition  of  others  less  acceptable  than  himself.  This 
point  has  been,  perhaps,  more  often  illustrated  in  the  higher 
grade  of  professional  labor,  as  in  the  case  of  John  Sartain, 
the  engraver,  Charles  O’ Conor,  the  lawyer,  and  Meissonier, 
the  painter  ;  but  the  opportunity  of  this  advantage  is  open  to 
every  laborer  in  every  grade  of  effort ;  and  there  is  no  other 
thing  so  important  to  the  welfare  of  the  laboring  class  as  that 
each  laborer  shall  feel  that  he  is  one  by  himself,  that  his 
service  is,  and  is  to  be,  his  own  to  sell,  and  that  he  is  bound 
to  make  it  in  some  way  different  in  excellence  from  that  of 
his  competitors.  For  example,  a  courteous  laborer  is  always 
preferred  to  a  rude  one,  a  conscientious  to  an  unprincipled 
one,  a  skilful  to  an  awkward  one,  a  steady  to  a  restless  one, 


212 


POLITICAL  ECONOMY. 


a  con  tented  to  a  dissatisfied  one,  one  interested  in  his  work 
to  make  it  betier  to  one  who  already  thinks  he  knows  it  all. 
This  point  bears  intimate  relations  to  the  supply  of  laborers ; 
and,  were  it  attended  to,  as  it  might  be,  by  all  laborers, 
would  make  their  competition  for  employment  a  different 
thing  from  what  it  is  at  present ;  it  would  give  such  an 
individuality,  such  a  variety,  such  an  excellence,  to  personal 
services,  as  would  adapt  them  to  the  almost  infinitely  varied 
market,  and  take  away  the  curse  of  conglomerated  competi¬ 
tion. 

A  rude  classification  of  labor  may  be  made  into  common , 
skilled ,  said  professional  labor.  Common  labor  is  that  which 
can  be  acceptably  performed  by  an  ordinarily  competent  per¬ 
son  after  a  little  practice  and  instruction,  without  any  thing 
corresponding  to  an  apprenticeship  as  a  preliminary.  Farm 
laborers,  railroad  laborers,  ’longshoremen,  teamsters,  por¬ 
ters,  miners,  and  many  more,  belong  to  this  class.  Wages 
are  usually  the  lowest  and  steadiest  in  this  class,  because, 
owing  to  the  ease  with  which  the  class  can  be  recruited  at 
any  time  from  growing  boys  and  immigrating  foreigners,  the 
supply  is  kept  constantly  large  relatively  to  the  demand. 
Skilled  labor,  namely,  that  of  those  who  have  had  to  pass 
through  something  equivalent  to  an  apprenticeship  in  order 
to  be  able  to  offer  their  services,  presents  some  points  of 
difference  from  common  labor.  In  the  first  place,  their 
numbers  are  fewer,  because  comparatively  few  parents  can 
afford  to  give  their  children  the  time  and  the  money  needful 
for  them  to  learn  a  trade,  or  to  become  skilful  in  any  art 
requiring  education  ;  and,  as  a  result  of  this,  their  wages  will 
rule  higher  than  common  wages,  because  the  press  of  compe¬ 
tition  will  be  less  felt  among  them,  and  because,  being  more 
intelligent  and  consequently  mobile,  they  can  better  insist 
on  their  claims,  and  can  better  distribute  themselves  to 
points  where  their  services  are  in  demand.  In  the  second 
place,  they  are  more  likely  to  be  subject  to  a  strong  demand 
than  common  laborers  are,  on  account  of  the  close  connec- 


LABOR. 


213 


tion  of  their  labor  with  special  accumulations  of  capital. 
Professional  labor  is  the  highest  form  of  personal  services 
rendered  for  pay,  because  it  involves  the  most  of  time  and 
expense  in  the  way  of  preparation,  because  it  is  most  often 
connected  with  high  natural  abilities  and  genius,  and  because 
for  these  reasons  it  receives  the  highest  remuneration,  or 
wages. 

It  is  not  pretended  that  sharp  lines  can  be  drawn  between 
these  three  kinds  of  labor,  nor  indeed  is  it  needful  in  any 
discussion  of  wages.  We  mean  by  professional  labor  the 
services  of  those  who  have  received  a  technical  education, 
—  something  more  than  an  apprenticeship,  —  expressly  to  fit 
them  to  render  these  services,  and  who  have  the  requisite 
character,  talents,  and  genius  to  enable  them  to  succeed. 
Clergymen,  physicians,  lawyers,  literary  men,  artists,  actors, 
and  many  more,  render  professional  services  loosely  so  called. 
The  obstacles  at  the  entrance  to  this  path  occasioned  by  the 
lack  (1)  of  appropriate  natural  gifts,  or  (2)  of  the  requi¬ 
site  industry  and  character,  or  (3)  of  the  means  of  a  suitable 
education  and  training,  practically  exclude  so  many  persons, 
that  the  competition  in  the  higher  walks  of  professional  life 
is  not  such  as  to  prevent  a  large  remuneration  for  services 
rendered.  The  demand  for  these  is  often  peculiarly  intense, 
as  well  as  the  supply  peculiarly  limited.  When  great  interests 
of  property,  of  reputation,  or  of  life  are  at  stake,  it  is  felt 
that  the  best  men  to  secure  these  must  be  had  at  almost  any 
price.  Fees  and  rewards  for  services  of  great  delicacy,  of 
great  difficulty,  or  great  danger,  are  paid  by  individuals  and 
corporations  and  nations  without  grudging.  Comparatively 
few  men  reach  a  high  point  of  excellence  in  their  respective 
professions,  and  they  have  in  consequence  a  natural  monopoly 
in  these  fields  of  effort,  and  receive  for  their  labor  a  very 
high  rate  of  wages. 

For  example,  Daniel  Webster  could  demand  a  fee  of  $1,000 
for  making  a  single  plea  in  court,  Paganini  a  like  sum  for  an 
hour’s  playing  on  a  violin,  and  Jenny  Lind  at  least  as  much 


214 


POLITICAL  ECONOMY. 


for  an  evening’s  singing  in  a  concert,  because  there  was  in 
each  case  a  strong  demand  for  a  peculiar  service  and  only 
one  person  in  the  world  who  could  render  that  service  in  the 
circumstances  to  the  same  perfection.  The  demand  was 
strong,  the  supply  was  small,  and  the  value  consequently 
great.  The  highest  efforts  of  professional  skill  will  always 
receive  a  high  reward,  whenever  there  is  one  person  even, 
who,  together  with  a  strong  desire  for  the  product,  has  also 
the  power  to  give  a  service  in  return  ;  and  especially  when¬ 
ever  there  are  many  persons  who  have  a  similar  desire  and 
power,  to  whom,  as  in  the  case  of  Paganini  and  Jenny  Lind, 
the  service  can  be  rendered  in  common  without  lessening  the 
satisfaction  of  each  individual.  That  the  supply  is  small  in 
these  higher  regions  of  skilled  effort,  is  due  partly  to  the 
fact,  that  Nature  is  not  lavish  in  her  gifts  of  peculiar  talents, 
and  partly  to  the  fact,  that  those  who  have  received  have 
assiduously  cultivated  them,  and  have  reached  in  consequence 
a  high  point  of  relative  advantage.  These  persons  have  what 
may  be  called  a  natural  monopoly  in  their  respective  fields  of 
high  effort,  because  there  are  few  others  who  have  the  natural 
gifts  and  the  acquired  skill  which  enable  them  to  come  in 
competition  with  them.  But  the  objections  which  lie  with 
such  force  against  artificial  monopolies,  cannot  be  urged  at 
all  against  a  natural  monopoly  ;  for,  if  the  road  to  excellence 
be  open  to  all,  and  no  artificial  obstructions  thrown  in  the 
paths  of  any,  there  is  no  blame  but  rather  praise  for  him 
who  distances  all  competitors,  and  demands  for  services  of 
peculiar  excellence  a  large  remuneration.  Exchange  rejoices 
in  all  diversity  of  advantage  that  is  the  birth  of  freedom, 
but  reprobates  with  all  her  force  advantage  that  is  gained 
by  artificial  restrictions,  because  artificial  restrictions  alwa}Ts 
infringe  on  somebody’s  right  to  render  services  for  a  return  ; 
and  the  right  to  render  services  for  a  return  is  the  fundamental 
conception  in  the  right  of  Property. 

Within  this  great  law  of  Demand  and  Supply,  now  sketched 
in  outline  as  applied  to  the  value  of  labor,  that  is,  to  wages, 


LAB  on. 


215 


there  are  a  number  of  minor  principles,  which  go  to  vary  the 
wages  of  all  these  three  kinds  of  labor,  mainly  through  their 
action  on  Supply.  We  will  now  consider  these,  before  pass¬ 
ing  to  the  discussion  of  what  constitutes  much  of  the  Demand 
for  labor,  which  is  a  topic  closely  connected  with  Capital, 
the  subject  of  the  next  chapter.  Several  of  these  principles 
were  mentioned  by  Adam  Smith,  and  in  connection  with  them 
we  shall  present  others  of  no  less  importance. 

1.  The  agreeableness  or  disagreeablcness  of  the  employ¬ 
ments  will  have  an  influence  in  determining  the  rate  of  wages 
paid  to  those  who  engage  in  them.  The  more  agreeable  em¬ 
ployment  will  attract  the  larger  number,  and  will  experience 
in  consequence  the  press  of  competition,  and  the  rate  of 
wages  will  be  lessened  by  the  increased  supply  of  laborers. 
The  more  disagreeable  employment  will  feel  less  the  press¬ 
ure  of  numbers,  and  will  secure,  other  things  being  equal, 
a  higher  rate  of  remuneration  in  consequence.  Among  the 
elements  which,  in  spite  of  the  diversity  of  natural  tastes, 
make  any  employment  agreeable  or  disagreeable  to  the 
laborers,  are  (1)  the  less  or  greater  exertion  of  physical 
strength  required,  (2)  the  healthfulness  or  unheal thfulness 
of  the  labor,  (3)  its  cleanliness  or  dirtiness,  (4)  the  degree 
of  liberty  or  confinement  in  it,  (5)  the  safety  or  hazard  of 
the  employment,  (6)  the  esteem  or  disrepute  of  it  in  public 
opinion.  To  illustrate  each  of  these  in  order,  the  stone¬ 
mason,  the  glass-blower,  the  scavenger,  the  factory  opera¬ 
tive,  the  worker  in  a  powder-mill,  the  smuggler,  will  each 
receive  a  larger  compensation  owing  to  the  peculiar  element 
of  disagreeableness  involved  in  his  emplo}Tment ;  and  he  will 
be  able  to  demand  and  secure  it  through  the  action  of  the 
disagreeableness  upon  the  supply  of  such  laborers.  Of  all 
these  elements,  public  opinion  is  perhaps  the  most  opera¬ 
tive  ;  and  if  this  be  favorable  to  an  employment,  and  some 
social  consideration  be  attached  to  it,  and  only  common 
qualifleations  be  required  for  it,  the  wages  in  it  will  infalli¬ 
bly  be  low.  This  is  probably  the  main  reason  why  so  many 


216 


POLITICAL  ECONOMY. 


young  women  prefer  to  teach,  rather  than  be  employed  in 
mills,  shops,  or  offices,  and  why  the  wages  of  female  teach¬ 
ers  are  so  pitifully  low ;  although  each  of  the  elements  of 
agreeableness  specified  above  may  also  contribute  something 
towards  the  same  result.  If  a  business  be  decidedly  op¬ 
posed  to  public  opinion,  it  must  hold  out  the  inducement  of 
a  large  reward,  or  nobody  will  engage  in  it.  This  explains 
the  abnormal  gains  of  the  slave-trade,  the  liquor-business, 
of  gambling-houses,  and  of  lotteries. 

2.  The  easiness  and  cheapness ,  or  the  difficulty  and  ex¬ 
pense,  of  learning  different  employments,  will  have  an  influ¬ 
ence  on  the  rate  of  wages  paid  in  them.  The  more  quickly 
and  cheaply  one  can  learn  to  perform  the  duties  of  a  place 
satisfactorily,  the  less,  so  far  forth,  will  be  his  wages ;  be¬ 
cause  there  will  be  many  who  will  compete  with  him  in  ren¬ 
dering  such  services ;  the  more  time,  difficulty,  and  expense 
involved  in  learning  a  business,  the  larger,  so  far  forth,  will 
be  the  wages  secured  b}^  it ;  because  fewer  persons  have  the 
means,  the  foresight,  the  patience,  to  prepare  themselves 
for  such  a  vocation.  This  is  the  principal  ground  of  the 
difference  in  the  wages  of  skilled  and  unskilled  labor.  The 
artisan  has,  at  least,  given  time,  and  the  professional  man 
has  given  both  time  and  money,  to  fit  themselves  to  render 
the  services  which  they  now  offer  to  society  ;  and  it  is  right, 
therefore,  for  them  to  demand  a  higher  rate  of  compensation 
than  is  accorded  to  operatives  and  common  laborers.  But  a 
right  to  demand  does  not  always  carry  along  with  it  an  abil¬ 
ity  to  secure :  in  this  case  it  does,  through  the  reduction  of 
numbers  which  these  obstacles  at  the  entrance  occasion,  and 
the  consequent  weakness  of  competition.  To  put  a  boy 
apprentice  to  a  trade,  requires  on  the  part  of  the  parents 
a  foresight,  an  ability  to  get  on  without  his  immediate  help, 
and  sometimes  an  amount  of  money  for  his  board  and 
clothes,  which  all  parents  do  not  possess  ;  and  consequently, 
the  number  of  skilled  artisans,  who  must  learn  when  they 
are  young  if  at  all,  are  relatively  few  compared  with  common 


LABOR. 


217 


laborers,  and  are  able  to  realize  a  much  higher  rate  of  wages 
than  they.  In  the  professions,  if  we  confine  our  attention 
to  those  persons  who  are  thoroughly  trained  for  them,  we  shall 
find  a  higher  rate  of  compensation  still,  and  one  made  higher 
on  the  same  principles  ;  although  we  must  here  bear  in  mind 
the  counter- working  influences  which  tend  to  increase  the  com¬ 
petition  in  the  professions,  namely,  the  respectability  which 
attends  them,  the  desire  of  knowledge  for  its  own  sake  which 
is  gained  in  connection  with  them,  the  instruction  wholly  or 
in  part  gratuitously  offered  to  those  in  course  of  preparation 
for  them,  and  the  desire  to  do  good,  without  regard  to  pecuni¬ 
ar}^  reward,  which  actuates  many  who  enter  upon  them. 

3.  The  constancy  or  inconstancy  of  employment  is  a  con¬ 
sideration  that  affects  wages.  If  the  employment  be  such 
that  it  can  only  be  carried  on  during  nine  months  of  the 
year,  the  wages  of  the  day  or  month  will  be  greater  than 
they  would  be  if  it  could  be  carried  on  during  the  twelve 
months.  The  laborer  looks  to  the  aggregate  earnings  of  the 
year,  and  will  hardly  take  up  a  trade  which  affords  employ¬ 
ment  but  a  part  of  the  time,  unless  some  compensation  can 
be  found  in  the  higher  wages  for  that  time.  This  is  the 
chief  reason  why  the  day’s  wages  of  the  mason  and  the 
house-painter,  in  this  climate  at  least,  are  higher  than  those 
of  the  carpenter  or  smith.  The  coachman,  also,  may  stand 
by  his  horses  half  the  day  or  night,  with  no  call  for  his  ser¬ 
vices,  and  must  have,  therefore,  a  proportiouably  higher  fare 
from  those  whom  he  does  transport.  In  general,  it  is  found 
that  men  prefer  a  constant  employment  with  a  lower  rate 
of  wages,  than  an  inconstant  one,  with  a  prospect  of  higher 
pay  for  the  particular  jobs  actually  done,  and  because  they 
prefer  that,  those  who  take  up  with  the  other  are  able  to 
secure  a  higher  rate  of  pay  in  their  less  eligible  vocation. 
Counter  working  this,  however,  are  the  desires  which  many 
meii  have,  for  intervals  of  leisure  in  their  business  ;  and  the 
opportunity  to  make  these  intervals  subservient  to  anothei 
branch  of  business  or  means  of  livelihood. 


218 


POLITICAL  ECONOMY. 


4.  The  amount  of  trust  involved  affects  wages.  Men  in 
responsible  positions  secure  a  higher  rate  of  pay  for  their 
services  than  can  be  accounted  for,  except  by  a  reference 
to  the  unwillingness  of  people  to  intrust  great  interests  to 
others,  unless  they  are  men  of  established  character  for 
probity.  Such  men,  men  who  combine  all  the  other  requi¬ 
sites  for  an  important  post,  with  a  well-known  honesty,  are 
comparatively  rare  ;  and,  when  they  are  found,  will  receive 
a  very  high  compensation  for  their  services.  Treasurers  of 
corporations,  cashiers  of  banks,  and  holders  of  trust-funds 
generally,  are  examples  in  point.  Such  men  are  commonly 
obliged  also  to  find  responsible  bondsmen,  who  will  legally 
guarantee  the  correctness  of  their  proceedings ;  and  only 
men  of  well-tried  character  can  usually  procure  such  pecu¬ 
niary  guaranties.  Shall  we  say,  then,  that  men  offer  their 
honesty  in  the  market,  as  they  offer  their  skill,  and  are  paid 
for  the  one  as  for  the  other?  No!  Their  skill  has  been 
acquired  to  sell,  and  for  no  other  reason  ;  but  their  honest}^, 
if  it  be  genuine,  has  another  basis  altogether ;  and  he  who 
is  honest,  simply  because  honesty  is  the  best  policy,  is  not 
honest  at  all.  The  very  characteristic  of  honesty  is  that  it 
cannot  be  bought !  It  has  a  moral,  and  not  a  mercantile 
foundation.  In  point  of  fact,  a  man  who  has  the  full  con¬ 
fidence  of  his  fellow-citizens,  as  an  honest  man,  and  at  the 
same  time  all  the  other  qualifications  requisite  for  a  post  of 
high  pecuniary  trust,  is  in  position,  partly  on  the  ground 
of  his  honesty,  to  render  a  high  service,  and  will  receive 
for  that  service  a  high  reward ;  but  let  us  all  protest,  in  the 
name  of  morals,  against  the  notion  that  honesty  is  a  mar¬ 
ketable  article :  it  is  rather  an  underlying  element  of  moral 
character,  which  fits  men  indeed  to  render  certain  ser¬ 
vices,  but  the  honesty  is  maintained,  not  for  the  sake  of 
the  service,  but  has  an  independent  basis  of  its  own.  So, 
also,  most  people  would  prefer  a  deeply  religious  man  for  a 
preacher  and  spiritual  guide,  but  it  is  a  perversion  of  lan¬ 
guage  to  maintain  that  in  rendering  these  services  a  clergy- 


LAB  on. 


219 


man  sells  his  religion.  It  is  true  that  he  sells  services  to 
the  appropriate  rendering  of  which  his  personal  piety  con¬ 
tributes  one  element ;  but  the  piety  is  not  nourished  for  the 
sake  of  the  sendees,  but  for  its  own  sake,  and  it  must  not 
be  confounded  with  that  which  is  sold.  Accordingly,  while 
the  clergyman’s  vocation  is  sacred,  and  belongs  to  the  sphere 
of  religion,  his  salary  belongs  to  the  sphere  of  exchange, 
and  its  determination  is  wholly  a  business  transaction.  This 
distinction  ought  to  be  better  understood  than  it  is  ;  and 
both  clergymen  and  people  need  to  be  reminded  that  the 
spiritual  things  belong  to  one  sphere,  and  the  carnal  things 
to  another.  The  amount  of  a  clergyman’s  salary,  and  the 
time  and  mode  of  its  payment,  are  matters  of  pure  business ; 
and  the  clergyman  himself  is  to  blame  if  he  does  not  attend 
to  them,  and  insist  on  them,  on  business  principles. 

5.  The  probability  of  success  in  any  employment  is  a  cir¬ 
cumstance  that  has  some  influence  on  the  rate  of  wages  paid 
in  it,  through  the  action  of  this  probability  on  the  numbers 
of  those  who  enter  upon  it.  If  success  be  doubtful,  fewer 
will  engage  in  such  a  business,  and  those  who  do  engage 
in  it  and  succeed,  will  reap  a  very  high  reward.  Ten  boys, 
for  example,  put  to  the  blacksmith’s  trade,  ordinary  capa¬ 
city  being  presupposed,  will  probably  every  one  succeed  in 
becoming  a  tolerable  workman  ;  but  of  ten  boys  of  the  same 
capacity  put  apprentice  to  an  engraver,  probably  not  over 
three  would  ever  reach  any  high  degree  of  skill  and  success  ; 
and  therefore,  the  pressure  of  numbers  will  be  felt  much 
more  in  the  former  than  the  latter  art.  So  also,  those  who 
take  jobs  by  contract,  and  who  consequently  assume  some 
risks,  are  usually  paid  at  a  higher  rate  than  those  wrho  do  work 
by  the  day.  It  is  true  that  this  is  owing  partly  to  the  fact 
that  the  contractor  commonly  uses  his  own  capital,  and  must 
therefore  be  paid  profits  as  well  as  wrages,  and  also  that  the 
wages  of  superintendence  are  due  to  him  as  wrell  as  ordinary 
weges  ;  still  there  is  a  residuum  of  difference  which  can  only 
be  accounted  for  by  the  risk  he  runs  of  a  successful  issue. 


220 


POLITICAL  ECONOMY. 


The  difference  in  wages  from  this  fifth  cause  of  variation, 
would  be  greater  than  it  is,  were  it  not  for  the  overweening 
confidence  which  many  men  have  in  their  own  good  luck. 
This  confidence  is  seen  in  the  rush  which  is  always  made  for 
newly  discovered  mining  regions,  and  in  the  facility  with 
which  even  yet  lottery  tickets  are  sold.  It  is  demonstrable 
beforehand  on  the  doctrine  of  chances,  that  no  person  can 
rationally  buy  any  lottery  ticket  at  its  advertised  price, 
because  if  that  person  should  buy  them  all  he  would  cer¬ 
tainly  lose  money,  since  the  sum  of  the  prizes  is  always  less 
than  the  sum  of  the  prices  ;  and  yet  people  still  buy  lottery 
tickets  in  spite  of  the  demonstration  ;  and  the  bitter  expe 
rience  of  the  most  in  California  and  at  Pike’s  Peak,  at  Lead- 
ville  and  Deadwood,  taught  too  late  how  excessive  was  the 
confidence  in  their  own  success  of  the  masses  who  flocked 
to  those  new  El  Dorados.  Besides  this  excessive  confidence 
in  individual  minds,  there  comes  occasionally  a  general 
movement  in  whole  communities  towards  overconfidence  in 
commercial  enterprises  of  all  sorts,  and  this  is  always  fol¬ 
lowed  by  a  season  of  depression  called  a  commercial  crisis, 
which  can  only  be  thoroughly  understood  after  we  have 
studied  Money  and  Credit. 

6.  Custom ,  prejudice ,  and  fashion ,  have  something  to  do 
with  deciding  the  rate  of  wages  in  certain  departments  of 
labor.  In  former  times  and  in  the  older  countries  custom 
was  largely  appealed  to  as  helping  to  determine,  for  exam¬ 
ple,  the  current  fees  of  lawyers  and  doctors,  competition 
coming  in  to  decide  how  many  such  fees  a  man  should  get, 
rather  than  the  amount  of  each  particular  fee ;  also,  the 
shares  of  the  produce  going  respectively  to  the  agricultural 
tenant  and  to  the  landowner ;  but  competition,  so  far  as 
rates  of  wages  are  concerned,  seems  now  to  be  breaking 
down  custom  or  usage  in  all  directions,  and  will  soon  per¬ 
haps  reign  supreme  over  the  economic  field ;  while,  in  cer¬ 
tain  other  matters  relating  to  land  and  trade,  custom  seems 
to  be  hardening  into  law,  as,  for  instance,  the  famous  Ulstei 


LABOR. 


221 


Right.  Prejudice  is  closely  allied  to  custom,  and  las  some 
voice  still  in  adjusting  wages,  as  may  be  seen  in  women’s 
wages  crowded  down  to  a  point  unreasonably  low  as  com¬ 
pared  with  the  wages  of  men,  and  also  in  the  rate  of  John 
Chinaman’s  wages  in  those  parts  of  the  United  States  where 
he  ventures  to  offer  his  services  in  the  teeth  of  public  opin¬ 
ion.  Custom  and  prejudice  may  yield  the  field,  but  fashion, 
which  is  one  form  of  competition,  will  always  have  an  influ¬ 
ence  over  wages.  They  who  lead  the  styles  in  any  depart¬ 
ment  whatsoever,  will  always  offer  their  services  to  society 
at  an  advantage  to  themselves,  and  their  rate  of  compensa¬ 
tion  will  be  legitimately  higher  than  the  average  rate  of  their 
fellows,  of  which  a  good  instance  was  the  marked  worldly 
prosperity  about  1880  of  Worth,  the  man-milliner  of  Paris. 

7.  Legal  restrictions  and  voluntary  associations  are  another 
cause  acting  on  wages,  by  acting  on  the  supply  of  laborers. 
Laws  inhibiting  or  promoting  immigration,  laws  appointing 
the  fees  and  salaries  of  officials,  tariff  laws,  whether  pro¬ 
hibitory  or  only  restrictive,  unequal  taxation,  and  so  on, 
all  have  an  agency  in  adjusting  wages.  Governments  are 
coming,  however,  much  more  freely  than  formerly,  to  leave 
every  thing  except  the  wages  of  their  own  servants,  and 
those  things  which  they  choose  to  tax,  to  the  simple  and 
safe  action  of  supply  and  demand.  The  guilds  of  the  Mid¬ 
dle  Ages,  and  the  trades’  unions  of  our  own  day,  are  exam¬ 
ples  of  voluntary  associations  for  the  sake  of  regulating  the 
wages  of  the  members  by  combined  action.  The  restrictions 
in  the  old  guilds,  limiting  the  number  of  apprentices  to  each 
artisan,  determining  the  time  a  man  should  serve  before  he 
could  become  a  master,  and  so  on,  were  very  onerous,  and 
have  mostly  passed  away.  The  trades’  unions  of  the  pres¬ 
ent  da}r  cannot  be  commended,  because  they  tend  to  destroy 
the  freedom  of  personal  action,  and  bring  all  workmen  to 
one  level  of  wages.  The  spirit  of  Political  Economy,  which 
is  the  spirit  of  freedom,  is  against  such  associations  for  such 
purposes.  If  any  man  has  a  service  to  render,  let  him 


909 

JmU  «~J  ±4 


POLITICAL  ECONOMY. 


offer  it  freely,  and  make  the  best  terms  he  can  with  whoever 
wants  it.  i 

8.  The  mobility  of  laborers,  or  the  lack  of  it,  acts  on 
wages  by  affecting  the  supply  of  laborers  at  any  place.  In 
some  countries,  notably  in  the  United  States,  laborers  move 
from  place  to  place  with  considerable  facility  under  the  action 
of  demand  for  labor.  According  to  the  United  States  Census 
of  1870,  7,500,000  of  the  native  population  dwelt  in  other 
States  than  those  in  which  they  were  born.  Many  of  these, 
doubtless,  had  left  their  native  region  to  obtain  more  fertile 
land,  and  many  also  to  obtain  more  remunerative  employment. 
The  native  American,  more  than  most  other  persons,  is  not 
only  willing  to  move  from  place  to  place  in  the  hope  of  better¬ 
ing  his  condition,  but  is  also  willing  to  change  his  occupation 
from  time  to  time  in  the  same  hope.  There  is  more  freedom 
of  movement  locally,  and  less  fixedness  of  occupation  on 
the  part  of  laborers  and  others,  in  this  country  than  in  any 
other  industrial  country.  Even  foreign  immigrants  here,  — 
factory  operatives,  miners,  and  other  laborers,  —  seem  to 
catch  after  a  while  the  spirit  of  the  country  in  both  these 
respects.  There  is  one  great  advantage  in  all  this,  namely, 
competition  becomes  more  uniform  in  all  places,  an  unusual 
demand  for  labor  at  any  point  is  easil}T  met,  and  wages 
neither  rise  so  high  nor  fall  so  low  at  special  points  as  they 
otherwise  would.  But  there  is  a  disadvantage  also,  namely, 
the  service  of  laborers  floating  locally  or  changing  the  kind 
of  their  labor  can  never  be  so  excellent  as  service  more 
steady  in  place  and  time.  In  Europe,  on  the  other  hand, 
laborers  are  far  less  mobile  than  with  us  ;  and  in  Asia  still 
less  so.  There  is  said  to  be  no  country  in  Europe  in  which 
the  proportion  of  foreigners  to  the  native  population  exceeds 
three  per  centum.  In  England,  which  is  a  small  country, 
the  difference  in  wages  between  the  northern  and  southern 
counties  is  very  marked.  Professor  Fawcett  is  authority 
for  the  statement,1  that  an  ordinary  agricultural  laborer 

1  Political  Economy,  p.  167. 


LABOR. 


223 


in  Yorkshire,  during  the  winter  months,  earns  thirteen  shil¬ 
lings  a  week,  while  a  Wiltshire  or  Dorsetshire  laborer,  doing 
the  same  kind  of  work  during  the  same  number  of  hours, 
earns  but  nine  shillings.  The  contrast  between  the  wages 
of  English  agricultural  laborers  in  general,  and  the  wages  of 
those  employed  in  mills,  mines,  and  furnaces,  is  still  more 
striking.  Competition  is  by  no  means  perfect  in  distributing 
commodities  so  as  to  make  their  price  uniform  in  the  same 
country,  or  even  in  the  same  count}’ ;  but  the  immobility  of 
labor,  for  an  obvious  reason,  is  greater  than  the  immobility 
of  goods.  While  labor  should  be  free  to  go  wherever  it  may 
be  in  demand,  the  natural  reluctance  of  most  men  to  leave 
their  native  haunts,  enables  each  nation  to  work  out  its 
chosen  ends  without  wholesale  interference  from  abroad. 
If  China  should  precipitate  itself  upon  the  United  States,  or 
India  upon  England,  as  the  mere  economical  impulse  might 
indicate,  it  w7ould  be  disastrous  to  the  western  nations  ;  but 
Providence  holds  one  impulse  in  check  by  a  stronger  one, 
and  Political  Economy  deals  with  men  as  the}7  are,  and  with 
exchanges  as  they  actually  take  place ,  all  things  being  con¬ 
sidered ,  and  not  as  they  would  be  were  competition  in  all 
directions  abstractly  perfect. 

9.  Lastly,  we  must  note  the  influence  of  casual  events 
upon  wages,  as  these  events  affect  the  supply  of  laborers. 
For  example,  in  1348,  a  terrible  plague,  called  the  Black 
Death,  invaded  England,  and  swept  away  more  than  one-half 
of  its  population.  “  Even  when  the  first  burst  of  panic  was 
over,  the  sudden  rise  of  wages  consequent  on  the  enormous 
diminution  in  the  supply  of  free  labor,  though  accompanied 
by  a  corresponding  rise  in  the  price  of  food,  rudely  disturbed 
the  course  of  industrial  employments  ;  harvests  rotted  on 
th3  ground,  and  fields  were  left  untilled,  not  merely  from 
scarcity  of  hands,  but  from  the  strife  which  now  for  the  first 
time  revealed  itself  between  Capital  and  Labor.”1  The 
landowners  of  the  country  districts  and  the  craftsmen  of  the 

1  Green’s  Short  History  of  the  English  People,  p.  769. 


224 


POLITICAL  ECONOMY. 


towns,  not  understanding  the  law  of  wages,  were  scandal¬ 
ized  by  wliat  seemed  to  them  the  extravagant  demands  of 
the  new  labor-class.  Parliament,  as  if  there  were  no  natural 
law  regulating  such  things,  enacted  as  follows:  “Every 
man  or  woman  of  whatsoever  condition,  free  or  bond,  able 
in  body,  and  within  the  age  of  threescore  years,  and  not 
having  of  his  own  whereof  he  may  live,  nor  land  of  his  own 
about  the  tillage  of  which  he  may  occupy  himself,  and  not 
serving  any  other,  shall  he  hound  to  serve  the  employer  who 
shall  require  him  to  do  so,  and  shall  take  only  the  icages 
which  were  accustomed  to  he  taken  in  the  neighborhood  where 
he  is  bound  to  serve  two  }'ears  before  the  plague  began.” 
The  next  year,  the  price  of  labor  was  sought  to  be  fixed  by 
act  of  Parliament,  and  the  labor-class,  already  partly  eman- 

4 

cipated,  was  once  more  tied  to  the  soil.  Afterwards,  the 
runaway  laborer  was  ordered  to  be  branded  on  the  forehead 
with  a  hot  iron,  and  the  harboring  of  country  serfs  in  the 
towns  was  rigorously  forbidden.  All  these  acts  of  Parlia¬ 
ment,  and  many  more  of  the  same  kind,  were  powerless  to 
keep  down  wages  to  the  old  standard,  but  were  powerful  to 
keep  up  ill-blood  and  social  discontent.  They  prepared  the 
way  for  agitators  like  John  Ball,  for  the  poet-agitator  William 
Longland,  and  for  the  Peasant  Revolt  of  1381.  John  Ball’s 
famous  rhyme  condensed  the  scorn  for  the  nobles,  the  long¬ 
ing  for  just  rule,  and  the  resentment  at  oppression,  of  the 
peasants  of  that  time,  and  of  all  times  :  — 

“  When  Adam  delved  and  Eve  span, 

Who  was  then  the  gentleman  ?” 

The  first  great  poet  of  the  Poor,  Robert  Longland,  in  his 
Vision  of  Piers  Ploughman,  saw  clearly  enough  that  as 
population  rose  again  to  its  normal  height  the  high  wages  of 
the  post-plague  period  would  pass  away:  —  “I  warn  you, 
workmen,  win  while  ye  may,  for  Hunger  hitherward  hasteth 
him  fast.”  Still,  a  hundred  years  after  the  Black  Death 
the  wages  of  an  English  laborer  “  commanded  twice  the 


LABOR . 


225 


amount  of  the  necessaries  of  life  which  could  have  been 
obtained  for  the  wages  paid  under  Edward  the  Third.” 
Another  instance  of  a  similar  kind  was  seen  during  the  late 
civil  war  in  the  United  States,  wdien  the  large  enlistment 
into  the  northern  army,  of  farm-laborers  and  factory-oper¬ 
atives,  brought  about  such  a  sharp  increase  of  wages  on 
farms  and  in  the  mills,  that  at  last  the  mill-owners,  in  this 
vicinity  at  least,  closed  their  doors  against  the  recruiting 
officers,  partly  because  of  the  rise  of  wages  consequent  ou 
the  enlistments,  and  partly  because  their  manufacturing  was 
then  too  profitable  to  be  endangered  by  a  prospective  lack  of 
hands.  So  it  is.  “  Scarce  is  ever  costly.” 

Now,  then,  on  the  other  hand,  we  must  pass  to  discuss  the 
facts  and  principles  connected  with  the  demand  for  labor. 
As  we  have  seen,  Demand  is  not  mere  Desire,  but  desire 
coupled  with  the  ability  to  render  return  services.  The  de¬ 
mand  for  labor,  therefore,  cannot  be  unlimited.  The  power 
to  render  and  receive  services  in  exchange,  though  vast,  is, 
considered  in  reference  to  one  generation  of  men,  strictly 
limited,  because  the  physical  and  mental  powers  of  men, 
to  say  nothing  of  the  powers  of  the  physical  earth,  are  lim¬ 
ited.  There  may  be  an  increase,  but  there  must  be  a  limit. 
The  demand  for  labor,  too,  is  limited  by  the  demand  on 
the  part  of  the  same  persons  for  commodities  and  claims. 
These  latter  must  be  paid  for,  and  that  leaves  so  much  less 
to  pay  for  labor.  Wages,  therefore,  cannot  rise  indefinitely 
for  another  reason  than  the  probable  increase  of  the  supply 
of  laborers.  All  labor  is  offered  over  against  some  demand 
of  other  men,  and  wages  are  the  response  to  that  appeal. 
Accordingly,  it  is  easy  to  point  out  what  is  the  maximum 
of  all  wages  possible  to  be  paid  at  any  one  time :  it  is  the 
point  at  which  the  labor- takers  will  sooner  forego  some  of 
the  labor  received  than  give  any  more  for  it.  It  is  easy  also 
to  point  out  what  is  the  minimum  of  aggregate  wages  at 
any  one  time :  it  is  the  point  at  which  the  labor-givers  will 
sooner  forego  some  wages  altogether  than  take  any  less  wages. 


226 


POLITICAL  ECONOMY. 


Between  these  two  extremes  marked  out  by  the  intensity  of 
the  demand  on  both  sides,  the  current  rate  of  wages  in  each 
of  the  greatly  varying  departments  of  effort,  and  the  aggre¬ 
gate  amount  of  wages  in  all  departments  of  effort,  will  flnc- 
1  uate  back  and  forth  according  to  circumstances. 

Persons  who  put  forth  a  demand  for  labor ,  in  distinction 
from  a  demand  for  commodities  and  claims,  may  be  divided 
into  two  classes :  first,  those  whose  demand  for  labor  has 
the  end  of  immediate  gratification,  such  as  employers  of  do¬ 
mestic  servants,  physicians,  lawyers,  actors,  singers,  and  so 
on  ;  and  second,  those  who  employ  labor  for  the  sake  of  sell¬ 
ing  something  by  its  means,  for  an  ultimate  profit,  such  as 
manufacturers,  merchants,  railroad  men,  and  so  on.  The 
question  with  individuals  of  the  first  class  is,  Can  I  afford 
to  employ  this  labor?  that  is,  Have  I  at  hand  the  return 
services  to  pay  these  wages  in,  and  will  the  gratification 
justify  the  payment?  The  question  with  the  other  class  is, 
Will  the  direct  products  of  this  labor,  or  something  made 
ready  to  sell  and  sold  by  means  of  it,  repay  the  present 
expenditure  with  a  profit  besides?  As  a  general  rule,  the 
second  class  of  employers  puts  forth  the  steadier  demand 
for  labor,  employs  skilled  rather  than  common  or  profes¬ 
sional  laborers,  looks  sharply  after  the  efficiency  of  its  labor¬ 
ers,  acts  with  reference  to  prospective  rather  than  present 
markets,  expects  back  more  than  is  now  expended,  and  only 
proceeds  on  accumulations  of  capital  soon  to  be  treated  of. 

In  respect  to  the  first  class  of  employers,  —  remembering 
what  has  already  been  said  about  professional  labor,  —  the 
following  is  all  that  needs  to  be  added  so  far  as  demand 
and  consequent  wages  are  concerned.  There  are  a  great 
many  persons  in  all  countries  who  desire  such  services  as 
common  laborers  can  render,  and  are  able  to  pay  for  them 
at  a  moderate  rate  only,  since  their  desires  are  not  intense 
nor  their  means  very  ample.  There  are  everjovhere  common 
desires  for  personal  comforts  and  for  ordinary  gains  in  con¬ 
nection  with  a  small  capital,  just  as  there  are  often  intense 


LABOR. 


227 


desires  for  personal  distinction  and  for  extraordinary  gains 
in  connection  with  a  large  capital.  Common  laborers,  being 
numerous  for  the  reason  already  given,  compete  with  each 
other  to  secure  the  wages  thus  offered  by  those  who  desire 
their  services.  In  many  cases,  these  services  could  be  and 
would  be  dispensed  with,  if  a  high  rate  of  wages  was  de¬ 
manded.  Under  these  circumstances,  a  general  market-rate 
of  wages  for  common  labor  is  determined,  —  an  equalization 
of  demand  and  supply  is  had,  —  and  the  rate  is  always 
moderate,  because  the  service  of  the  labor-givers  has  few 
elements  of  scarcity  or  difficulty  about  it,  and  because  the 
return  service  of  the  labor-takers  is  not  proffered  under  the 
impulse  of  unusually  strong  desires.  Of  course,  a  market- 
rate  thus  established  is  liable  to  change  from  time  to  time, 
being  higher  in  flush  times  and  lower  in  dull  times,  and  the 
better  individual  laborers  will  get  and  ought  to  get  the  better 
wages.  The  number  of  laborers  is,  of  course,  an  element, 
the  general  prosperity  and  hopefulness  of  employers  is  another 
element,  and  the  amount  and  productiveness  of  capital  is 
still  another  element,  but  this  has  more  immediately  to  do 
with  wages  under  the  second  class  of  employers. 

Before  passing  to  those,  it  ought  to  be  said,  that  there  is 
no  unit  of  labor,  and  consequently  no  unit  of  wages.  There 
can  be  no  strict  measure  of  physical  and  mental  exertion  ; 
and  even  if  there  could  be,  that  would  not  furnish  a  unit  of 
wages,  because  wages  are  a  resultant  of  exertion  on  the  one 
side  and  of  desires  on  the  other ;  and  there  can  be  no  strict 
measure  of  desires.  Hence,  in  a  doctrine  of  wages,  only 
general  principles  can  be  laid  down.  For  instance,  t  is 
said,  an  agricultural  laborer  in  England  could  earn,  six  hun¬ 
dred  years  ago,  but  thirty-four  grains  of  standard  silver  in  a 
day,  while  now  he  can  earn  three  hundred  and  fifty  grains. 
Accepting  this  as  true  on  an  average  of  laborers  at  the  two 
epochs, — what  follows?  That  the  laborer  now  puts  forth 
ten  times  the  exertion  of  his  predecessor?  No!  That  the 
demand  for  the  labor  is  ten  times  greater  now  than  then  ? 


228 


POLITICAL  ECONOMY. 


No !  Even  a  grain  of  standard  silver,  though  physically  the 
same  now  as  then,  is  by  no  means  the  same  in  point  of 
value.  Silver  has  become  relatively  more  abundant  in  the 
course  of  these  centuries,  and  hence  is  cheaper  as  measured 
by  commodities  in  general  or  by  labor  in  general.  Labor 
itself  has  become  more  efficient,  and  is  aided  by  better  tools 
and  a  more  advanced  science.  Besides,  a  day’s  labor  is 
no  sound  measure  of  comparison  as  between  different  times 
or  different  countries  at  the  same  time.  How  long  are  the 
respective  days?  How  efficient,  how  well  trained,  are  the  re¬ 
spective  laborers  ?  How  much  armed  with  labor-saving  ap¬ 
pliances?  Nothing  is  more  indefinite  than  the  phrase,  “a 
day’s  labor;”  and  no  fallacies  are  more  patent,  or  more 
common,  than  those  which  turn  on  “days’  works”  and 
44  days’  wages  ”  in  different  countries.  Professor  Walker  in 
his  44  Wages-Question  ”  gathers  from  the  best  authorities 
such  statements  as  these  :  4  4  The  statistics  of  the  iron  indus¬ 
try  in  France  show  that  on  the  average  42  men  are  em¬ 
ployed  to  do  the  same  work  in  smelting  pig  iron  as  is 
done  by  25  men  on  the  Tees.”  “  On  the  G.  T.  R.  of 
Canada  the  French-Canadian  laborers  received  3s.  Gel.  a  day, 
while  the  Englishmen  received  from  5s.  to  Gs.  a  day,  but 
it  was  found  that  the  English  did  the  greatest  amount  of 
work  for  the  mone}-.”  “  In  India,  although  the  cost  of  daily 
labor  ranges  from  4 £cl.  to  Gd.  a  day,  mile  for  mile  the  cost 
of  railway  work  is  about  the  same  as  in  England.”  44  In  the 
quarry  at  Bonni&res,  in  which  Frenchmen,  Irishmen,  and 
Englishmen  were  employed  side  by  side,  the  Frenchman  re¬ 
ceived  3,  the  Irishman  4,  and  the  Englishman  6,  francs  a 
day  ;  and  at  those  different  rates  the  Englishman  was  found 
to  be  the  most  advantageous  workman  of  the  three.”  Even 
in  different  sections  of  the  same  country  a  marked  differ¬ 
ence  of  productive  power  is  forced  on  the  attention  of  the 
observer ;  as,  for  example,  between  the  artisans  of  north¬ 
ern  and  southern  France,  and  the  laborers  of  the  northern 
and  the  southern  United  States.  44  The  ill-paid  and  ill-fed 


LABOR . 


229 


agricultural  laborer  of  the  west  of  Euglaud  is  dearer  at  9s. 
or  10s.  a  week  than  the  Nottinghamshire  man  at  16s.” 

But  the  second  class  of  employers  operate  in  connection 
with  capital ;  and  we  must  now  anticipate  the  discussions  of 
the  next  chapter,  so  far  as  to  say,  that  all  capital  constitutes 
an  immediate  and  pressing  demand  for  labor.  Whoever 
desires  a  service  which  a  laborer  can  render,  and  lays  by 
something  to  pay  for  that  service,  creates  that  instant  a  de¬ 
mand  for  labor;  and  especially,  whoever  accumulates  raw 
materials  which  laborers  are  to  work  up,  builds,  buys,  or 
keeps  machinery  which  laborers  are  to  tend,  or  puts  himself 
in  position  to  suffer  loss  by  the  ownership  of  lands,  ships, 
or  other  property  whatsoever,  unless  laborers  be  employed  to 
make  them  productive,  creates  thereby  an  instant  demand 
for  labor.  All  such  accumulations  whatsoever,  destined  in 
the  owner’s  mind  to  be  employed  in  further  production,  all 
implements,  buildings,  and  improvements,  designed  to  assist 
labor,  and  raw  materials  which  labor  must  work  up,  are 
capital ;  and  capital  must  be  constantly  united  with  labor, 
or  the  owners  will  suffer  an  inevitable  loss.  The  presence 
of  capital  anywhere  constitutes  a  demand  for  labor.  The 
more  capital  there  is  anywhere,  the  stronger  the  demand  for 
labor ;  and  capital,  therefore,  is  the  poor  man’s  best  friend. 
Capital  does  not  like  to  lose  its  profit  any  more  than  the 
laborer  likes  to  lose  his  bread.  In  a  true  and  general  view, 
the  one  is  under  just  as  much  pressure  to  employ  laborers, 
as  the  other  to  get  employment.  They  come  together  of 
necessity  into  a  relation  of  mutual  dependence,  which  God 
has  ordained,  and  which,  though  man  may  temporarily  dis 
turb  it,  he  can  never  overthrow. 

Now  let  us  notice  first  that  the  aggregate  of  all  his  forms 
of  capital  helps  to  make  up  in  the  mind  of  the  capitalist  his 
motive  for  employing  labor,  because  the  more  he  has  invested 
in  buildings,  machinery,  and  materials,  the  more  urgent  is  the 
necessity  to  employ  laborers,  in  order  to  make  the  investment 
productive  ;  although  only  a  small  part  of  the  whole  capita? 


230 


POLITICAL  ECONOMY. 


X 


can  be  free  to  be  offered  in  the  payment  of  wages.  Demand 
for  labor,  speaking  strictly,  is  constituted  only  by  that  part 
of  the  capital  (whether  now  in  existence,  or  soon  to  be 
created)  which  is  available  to  be  offered  in  the  form  of 
wages  ;  but  it  is  clear,  that,  as  a  rule,  demand ,  that  is,  the 
portion  of  capital  designed  in  the  mind  of  the  capitalist  for 
the  payment  of  wages,  may  increase  under  the  influence  of 
his  increased  desire  for  laborers  ;  and  an  increased  desire  for 
laborers  is  a  necessary  consequence  of  the  increase  in  the 
aggregate  of  his  capital.  Whether  the  portion  designed  for 
wages  will  increase  or  not,  on  an  increase  of  capital,  will 
depend  mainly  on  the  action  of  the  laborers.  It  is  certainly 
possible  that  aggregate  capital  may  go  on  increasing,  while 
the  portion  set  aside  in  the  mind  of  the  employer  for  wages 
may  remain  stationary,  or  even  be  diminished,  owing  to  the 
competition  of  an  increased  number  of  laborers  and  the 
smaller  pay  going  to  each.  If  the  laborers  remain  about 
the  same  in  number  and  efficiency,  and  if  they  intelligently 
take  hold  of  their  position,  the  size  of  this  mental  wages- 
portion,  and  consequently  the  amount  of  actual  wages,  will 
surely  increase  with  all  increase  of  aggregate  capital.  There 
is  no  known  proportion  between  aggregate  capital  and  the 
ivages-portion  as  now  defined,  and  from  the  variable  nature 
of  the  second  element,  there  never  can  be,  although  this 
subtle  connection  between  the  two  things  is  certain  and 
important,  — important  because  actual  wages  paid  are  always 
tending  towards  their  limit  in  the  wages-portion.  This  point 
of  the  influence  of  the  whole  capital  on  the  desire  for  labor¬ 
ers,  and  consequently  (though  indirectly)  on  actual  wages 
paid,  was  new  when  presented  in  the  earlier  editions  of  this 
book,  and  seems  one  of  much  importance  in  unfolding  the 
relations  of  capital  to  labor. 

On  the  other  hand,  the  proportion  between  actual  wages 
paid  and  the  value  of  the  finished  2^'oducts  is  ascertainable. 
The  United  States  Census  of  1870  declared  this  proportion 
in  the  entire  manufacturing  industries  of  the  country  to  be 


LABOR. 


231 


19  :  100,  that  is  to  say,  wages  were  19  %  of  the  value  of 
the  goods.  In  the  cotton  and  woollen  industries,  taken 
alone,  wages  were  about  16  °J0  of  the  value  of  the  goods  as 
sold.  The  census  of  1880  puts  the  wages  paid  in  the  an¬ 
thracite  coal  industry  of  that  year  as  53  %  of  the  value 

* 

of  the  coal.  This  includes  wages  of  superintendence  ;  and 
ihere  is  probably  no  industry  in  which  wages  bear  so  large  a 
ratio  to  value  of  product  as  mining,  since  materials  and 
machinery  play  so  small  part  in  that  industry.  These  were 
16  %  of  the  value  of  the  coal  in  that  year,  and  31  %  of 
that  value  was  gross  profits.  It  is  probably  safe  to  say, 
that,  taking  all  branches  of  industry  in  this  country  together, 
one-fifth  of  the  value  of  all  commodities  sold,  that  is,  20  %, 
has  been  paid  out  as  wages  to  the  laborers  concerned  in 
their  production.  The  products  of  manufacturing  industry 
alone  were  worth  in  1870,  $4,232,325,442,  of  which  19  %,  or 
$804,141,833,  represented  wages.  What  we  have  loosely 
called  skilled  laborers,  accordingly,  have  a  hold  on  their  em¬ 
ployers  somewhat  more  firm  than  common  and  professional 
laborers  have  on  their  employers.  Capital  is  conservative. 
Capital  is  anxious  to  increase  itself.  Capital  knows  its  de¬ 
pendence  upon  its  laborers.  But  it  is  a  great  mistake  for 
laborers  to  suppose  that  there  is  no  limit  to  wages,  that  the}’ 
can  crowd  their  employers  indefinitely.  The  motive  of  these 
employers  is  profits  ;  and  when  profits  disappear,  this  demand 
for  labor  disappears  also,  except  under  certain  transitory  con¬ 
ditions,  when,  rather  than  lose  their  customers  and  get  out  of 
the  channels  of  trade,  employers  will  go  on  for  a  little  at  a 
loss  to  themselves.  But  this  loss  is  ultimately  a  greater  loss 
to  the  laborers  for  reasons  to  be  unfolded  in  the  next  chapter. 
And  it  is  a  still  greater  mistake  for  laborers  to  suppose  that 
their  own  industrial  qualities  are  a  matter  of  indifference  so 
far  as  wages  are  concerned.  Wages  are  paid  out  of  the 
joint  products  of  the  employers’  capital  and  the  laborers’ 
industry ;  and  when  that  industry  is  the  best  in  quality  and 
the  steadiest  in  quantity,  the  product  will  be  the  greatest, 


232 


POLITICAL  ECONOMY. 


and  the  part  going  to  wages  larger  than  ever.  It  is  a  pity 
that  there  is  so  much  misunderstanding  and  ill-feeling  be¬ 
tween  employers  and  skilled  laborers  whose  interests  are  at 
bottom  one,  and  whose  relations  ought  to  be  so  cordial. 
Most  of  the  so-called  labor-troubles  have  been  between  these 
two  classes,  owing  in  part  to  ignorance  of  economical  truth 
on  the  part  of  both,  owing  sometimes  to  pride  and  petu¬ 
lance  on  the  part  of  employers,  and  oftener  owing  to  unrea¬ 
soning  jealousy  and  aggregated  action  on  the  part  of  labor- 
en.  So  it  has  always  been.  Labor- troubles  are  almost  as 
old  as  civilization.  The  poet  Euripides,  in  his  play  of  the 
“  Supplicants,”  both  indicates  facts  as  they  were  then,  and 
points  out  a  hope  in  which  we  may  share,  that  these  middle  . 
classes  by  a  better  harmony  with  each  other  may  yet  ‘ 4  save 
the  State  :  ”  — 

“  In  each  State 

Are  marked  three  classes:  of  the  public  good 
The  rich  are  listless,  all  their  thoughts  to  more 
Aspiring;  they  that  struggle  with  their  wants, 

Short  of  the  means  of  life,  are  clamorous,  rude, 

To  envy  much  addicted,  ’gainst  the  rich 
Aiming  their  bitter  shafts,  and  led  away 
By  the  false  glosses  of  their  wily  leaders. 

’Twixt  these  extremes  there  are  who  save  the  State, 

Guardians  of  order,  and  their  country’s  laws.” 

Now,  this  aggregate  Demand  for  labor  in  any  country  needs 
a  name.  It  is  something  offered  or  promised  to  laborers. 

It  is  either  in  hand  or  expected  to  be  in  hand.  The  motive 
for  offering  it  is,  on  the  part  of  the  non-capitalists,  or  em¬ 
ployers  of  the  first  class,  present  gratification  of  some  sort ; 
on  the  part  of  the  capitalists,  or  employers  of  the  second 
class,  ultimate  profit;  that  which  both  these  classes  to¬ 
gether  are  willing  to  pay  rather  than  forego  the  varied  ser¬ 
vices  of  laborers,  or  what  we  have  called  as  related  to  the 
laborers  maximum  of  wages ,  requires  now  a  name  as  related 
to  the  employers  ;  for,  although  its  seat  is  only  in  the  minds 
of  men,  it  is  certainly  a  substantive  thing,  and  tends  con 


LABOR.. 


oo  o 
oo 


stantly  to  coincide  with  an  objective  and  practical  thing, 
namely,  actual  wages  paid  out.  Until  a  better  name  offers, 
let  us  call  this  mental  limit  and  amount  the  Wages -Portion. 
The  aggregate  of  wages  actually  disbursed  in  any  country 
may  fall  below  this  ideal  sum,  but  can  never  overpass  it.  If 
the  laborers  are  efficient  and  intelligent,  and  use  their  privi¬ 
leges  as  individual  parties  to  a  bargain,  the  whole  amount 
of  values  distributed  as  wages  will  closely  approximate  the 
Wages-portion.  The  larger  the  wages-portion,  the  larger  the 
sum  of  actual  wages  will  be.  This  sum  will  be  distributed 
among  all  laborers  at  greatly  varying  rates,  according  to 
the  nature  of  the  services  rendered,  and  according  to  the 
intensity  of  the  reciprocal  desires  of  the  two  parties  to 
the  sale.  Demand  and  Suppl}T,  in  their  action  aud  re-action 
on  each  other,  furnish  the  universal  law  of  Wages,  as  of 
every  thing  else  bought  and  sold.  If  we  look  first  at  the 
Employers,  it  is  in  the  interest  of  good  wages,  that,  (a)  they 
he  many ,  (6)  they  have  much  capital ,  (c)  this  capital  he  very 
productive ,  ( d )  more  capital  he  constantly  added ,  and  ( e ) 
thus  and  every  way  the  wages-portion  become  greater ;  and  if 
we  look  second  to  the  Laborers,  it  is  in  the  interest  of  wages, 
that,  (a)  their  industrial  capacity  he  high,  (6)  their  intelli¬ 
gence  and  mobility  crowd  actual  wages  to  the  wages-portion , 
and  (c)  their  number  at  any  one  point  able  to  render  just  the 
same  service  he  few.  These  are  the  true  principles  of  Wages. 
A  working  mau  once  put  it  well  and  short,  who  said:  “  I 
know  when  two  bosses  are  running  after  one  man,  wages  are 
high;  when  there  are  two  men  running  after  the  one  boss, 
wages  are  low.” 

We  may  see  now  what  we  are  to  think  of  some  remedies 
popularly  recommended  for  low  wages.  A  brief  discussion 
of  what  is  false  will  give  us  a  stronger  hold  of  what  is  true. 

1.  Some  people  say,  “Government  ought  to  interfere  to 
better  wages,  at  least  to  designate  a  minimum  below  which 
they  shall  not  go.”  This  proposed  remedy  is  a  delusion, 
and  so  is  every  other  one  that  ignores  the  general  law  of 


234 


POLITICAL  ECONOMY. 


wages  just  established.  Government  is  nothing  in  the  world 
but  a  committee  of  the  citizens  of  a  country  chosen  to  attend 
to  certain  great  interests  of  the  whole  body  which  cannot 
otherwise  be  cared  for ;  and  this  committee  (whatever  be 
the  form  of  government)  has  no  money  except  what  is  gath¬ 
ered  for  its  prescribed  uses  by  taxation  of  the  people,  and 
is  rarely  or  never  wiser  and  better  than  the  average  sense 
and  virtue  of  the  people.  To  show  the  people,  accordingly, 
how  to  make  their  bargains,  how  to  buy  and  sell  and  save 
and  spend,  is  a  function  government  is  not  fitted  for,  and 
was  not  chosen  to  perform,  and-  never  undertook  without 
making  a  botch  of.  Besides,  such  proposed  action  of  gov¬ 
ernment  could  have  no  tendency  whatever  either  to  enlarge 
the  wages-portion,  or  to  increase  the  industrial  efficiency  of 
the  laborers,  or  to  diminish  the  number  of  competitors  at 
any  one  point  of  the  wages  scale.  As  a  matter  of  fact, 
such  governmental  action  would  have  precisely  the  opposite 
effect  at  each  of  these  three  vital  points  of  wages  :  employers 
would  have  less  motive  to  swell  the  wages-portion,  laborers 
less  motive  to  improve  their  capacity,  and  more  motive  to 
congregate  locally.  Suppose,  that  at  some  given  point  in 
the  scale  of  wages,  free  and  intelligent  competition  has  been 
had  on  both  sides,  and  that  the  average  rate  of  wages  as 
thus  determined  proves  one  dollar  per  day  for  each  laborer. 
Suppose  further,  that  everybody  outside  of  the  employers 
thinks  this  is  quite  too  little,  and  that  government  accord¬ 
ingly  issues  a  decree  that  wages  at  that  point  must  be  there¬ 
after  one  dollar  and  a  half  per  day.  That  decree  has  no 
tendency  at  all  to  enlarge  the  wages-portion  of  those  partic¬ 
ular  employers,  because  that  is  determined  by  the  general 
productiveness  of  labor,  and  by  the  division  under  free 
competition  between  wages  and  profits  ;  if,  therefore,  the 
decree  were  carried  out,  as  it  never  practically  could  be,  the 
result  would  be  that  only  two-thirds  of  the  laborers  pre¬ 
viously  employed  could  be  employed  there  at  all,  and  the 
remaining  third  would  certainly  be  worse  off  than  before ; 


LABOR. 


235 


and  besides,  the  division  of  labor  being  necessarily  lessened, 
production  would  be  less  profitable  to  the  employers,  and 
the  next  wages-portion  would  be  less  than  before,  and  thus 
the  outcome  of  the  remedy  would  be  worse  than  the  disease. 
Let  alone  the  artificial  interference  of  government,  and  all 
natural  accessions  to  capital  at  that  point,  all  investment 
of  profits  in  an  enlarged  business,  all  saving  from  expendi¬ 
ture  for  the  sake  of  further  production,  tend  of  themselves 
to  increase  the  wages-portion,  and  thus,  the  number  and  intel¬ 
ligence  of  the  laborers  continuing  as  before,  tend  to  raise 
the  rate  of  wages.  Or,  if  there  be  no  accessions  to  capital, 
or  other  influence  swelling  the  wages-portion,  and  the  num¬ 
ber  of  laborers  be  diminished  at  that  point,  as  by  migra¬ 
tion  to  new  fields  of  effort  or  enlistment  in  armies,  the 
competition  of  wages-payers  for  labor  will  be  increased,  and 
the  rate  of  wages  will  rise.  Reversed  conditions,  of  course, 
will  give  reversed  results. 

But  there  are,  nevertheless,  indirect  ways  in  which  a  gov¬ 
ernment  may  act  most  beneficial^  on  this  whole  matter  of 
wages.  By  using  its  power  of  taxation  to  the  sole  end 
of  drawing  from  the  people  only  so  much  money  as  is  need¬ 
ful  for  its  rightful  uses  in  the  way  easiest  for  them  to  pay  ; 
by  fidelity  to  its  peculiar  trust  of  making  the  rights  of  per¬ 
son  and  property  as  secure  as  possible  to  all  on  the  basis 
of  strict  equality,  without  yielding  special  privileges  to  any  ; 
and  by  fostering  the  means  of  education  and  the  diffusion 
of  knowledge  among  all  classes  of  the  people  alike  ;  a  gov¬ 
ernment  may  act  helpfully  and  powerfully  upon  employers 
of  both  classes,  giving  impulses  to  enterprise,  spurs  to  indus¬ 
try,  assurance  to  gains,  and  effectiveness  to  the  desire  of 
accumulation,  and  thus  contribute  to  maximize  the  wages- 
portion  ;  while  at  the  same  time  the  same  agencies  act  upon 
laborers  of  all  kinds  with  equal  benefit,  making  them  intelli¬ 
gent,  hopeful,  sjving,  confident,  trustful  in  themselves  and 
in  the  government,  and  imparting  to  them  that  character 
and  self-respect  which  fits  them,  in  exchanging  services  with 


236 


POLITICAL  ECONOMY. 


capital,  to  demand  and  secure  their  full  rights  in  the  ex¬ 
change.  It  is  not  denied  that  capital  takes  advantage  of 
the  ignorance  and  immobility  of  laborers,  and  sometimes 
secures  their  services  at  a  less  rate  than  the  just  relations 
of  capital  to  labor  then  and  there  would  indicate,  but  the 
remedy  for  this  is  not  in  arbitrary  interference  of  govern¬ 
ment  in  the  bargain,  but  in  the  intelligence  and  self-respect 
of  the  laborers  which  shall  lit  them  to  insist  on  a  just  bar¬ 
gain.  In  this  whole  sphere  of  exchange,  the  just  and  com¬ 
prehensive  rule  always  will  be,  that  when  men  exchange 
services  wuth  each  other,  each  party  is  bound  to  look  out  for 
his  own  interest,  to  know  the  market- value  of  his  own  ser¬ 
vice,  and  to  make  the  best  terms  for  himself  which  he  can 
make.  Capital  does  this  for  itself,  and  laborers  ought  to  do 
this  for  themselves,  and  if  they  are  persistently  cheated  in 
the  exchange,  they  have  nobody  to  blame  but  themselves. 
Government  should  give  them  all  facilities  for  intelligence : 
they  should  give  themselves  a  character,  and  cherish  a  hearty 
self-respect,  which  there  is  nothing  in  their  position  to 
diminish :  towards  such  laborers,  capital  occupies  no  van¬ 
tage  ground  in  an  exchange  of  mutual  services.  But  let  us 
add  here  once  for  all  the  grand  truth,  that  Political  Economy 
does  not  cover  the  entire  relations  between  employers  and 
employed,  and  between  buyers  and  sellers  generally ;  it 
covers  perfectly  their  economical  relations  —  the  relations 
between  buyers  and  sellers  as  such;  but  morality  and  religion 
have  additional  but  not  incompatible  words  to  utter  when 
this  science  becomes  silent ;  mutual  forbearance  and  conces¬ 
sion,  mutual  affection  and  helpfulness,  are  duties  enforced 
by  higher  considerations  than  those  of  gain. 

2.  Others  say,  “Public  opinion  ought  to  be  brought  to 
bear  upon  employers  to  induce  them  to  give  sufficient 
wages.  ”  It  is  clear,  that  public  opinion  can  do  nothing  to 
this  end  directly,  partly  because  it  lias  no  effective  organ  by 
which  to  voice  itself,  but  mainly  because  it  cannot  reach  the 
root  of  the  matter,  in  that  it  cannot  make  general  industry 


LAB  OB. 


237 


more  profitable  and  thus  swell  the  wages-portion,  nor  can  it 
make  laborers  less  numerous  or  more  efficient  at  any  one  point 
of  the  scale.  People  oftentimes  forget  what  is  the  motive 
of  capitalists  in  employing  labor,  namely  profits,  and  that 
if  these  decline  or  disappear,  wages  cannot  rise;  and  they 
forget  too,  that  capitalists  are  under  no  obligation  to  employ 
laborers  at  any  time :  no  one  is  ever  under  any  obligation 
to  buy  or  sell :  it  is  a  question  of  gain  and  not  of  duty. 
Public  opinion,  however,  may  do  something  towards  better¬ 
ing  the  wages  of  labor,  in  countries  where  they  are  low,  by 
organizing  means  to  assist  the  laborers  in  distributing  them¬ 
selves  at  points  where  their  services  are  most  in  demand. 
Societies  in  our  seaboard  cities,  whose  object  it  is  to  aid 
immigrants  to  pass  on  from  those  cities  where  labor  is  very 
abundant,  to  the  county  towns  and  to  the  West,  where  it  is 
relatively  much  less  so,  are  commendable  in  their  purpose 
and  spirit.  So  also  are  emigration  societies  and  agencies, 
in  countries  like  Ireland,  where  more  or  less  of  misgovern- 
ment  and  much  more  of  misunderstanding  and  a  great  deal 
of  race  antipatl^  and  vital  religious  differences  and  a  very 
general  ignorance  produced  temporary  pressure  of  popula¬ 
tion  on  the  means  of  support.  Even  after  Irish  population 
had  much  declined  by  voluntary  emigration,  and  the  condi¬ 
tion  of  the  laboring  classes  for  other  reasons  also  had  much 
improved,  the  Irish  Land  Act  of  1881,  in  addition  to  its 
more  essential  clauses  relating  to  tenure  and  rent  and  sale, 
made  provision  for  parliamentary  assistance  to  further  emi¬ 
gration,  thus  hardening  public  opinion  into  positive  legis¬ 
lation.  Wherever  there  is  a  pressure  of  numbers  on  the 
wages-portion  so  as  to  bring  actual  wages  essentially  below 
that,  as  is  the  case  also  in  China,  it  is  a  good  thing  for  pub¬ 
lic  opinion,  and  possibly  also  for  legislation,  to  be  favorable 
to  emigration  to  newer  and  more  fortunate  countries,  and 
thus  to  assist  in  the  distribution  of  labor  to  those  points, 
wherever  they  may  be,  wher^  capital  is  ready  and  anxious  to 
employ  it. 


288 


POLITICAL  ECONOMY. 


It  maj'  surprise  some  who  are  familiar  with  hooks  ou  Po¬ 
litical  Economy,  that  we  do  not  here  adduce  the  influence 
of  public  opinion  in  restraining  population  as  favorable  to 
wages,  and  put  over  against  each  other  the  force  of  that 
spring  of  population  which  the  Creator  has  coiled  up  in  the 
nature  of  man  and  the  weakness  of  that  power  by  which 
the  earth  brings  forth  sustenance  for  man.  Malthusianism, 
as  it  has  been  called,  is  really  a  topic  of  Physiology  and  not 
of  Political  Economy  at  all.  Political  Economy  presupposes 
the  existence  of  persons  able  and  willing  to  make  exchanges, 
before  it  begins  its  inquiries  and  generalizations.  Plow  they 
come  into  existence,  the  rate  of  their  natural  increase,  and 
the  ratio  of  this  increase  to  the  increase  of  food,  however 
interesting  as  physiological  questions,  have  clearly  nothing 
to  do  with  our  science.  But  the  discussion  was  so  respecta¬ 
ble  in  its  origin,  and  has  played  such  a  part  in  the  growth 
of  our  science,  that  we  must  give  just  a  sketch  of  it.  Mr. 
Mai  thus,  an  English  clergyman  and  teacher,  greatly  inter¬ 
ested  himself  during  the  first  third  of  the  present  century 
in  the  welfare  of  the  poor ;  he  observed,  that,  as  a  rule,  they 
had  large  families,  and  even  in  the  workhouse  families  grew 
larger,  so  that  the  general  hopelessness  of  their  condition 
seemed  no  check  to  their  increase  in  number ;  wages  were 
very  low  on  account  of  the  pressure  of  such  numbers  on  the 
wages-portion ;  food  was  liable  to  be  very  high  on  account 
of  the  wretched  corn-laws  forbidding  importations  of  grain  ; 
he  was  led  to  contrast  the  natural  increase  of  population  in 
something  like  geometrical  progression,  with  the  rate  of  the 
increase  of  food  even  under  improved  agriculture  in  only 
something  like  arithmetical  progression ;  the  United  States 
was  then  doubling  its  population  in  25  years,  and  he  calcu¬ 
lated  that,  at  this  rate,  the  inhabitants  of  any  country  in 
five  centuries  would  increase  to  above  a  million  times  their 
present  number,  which  would  give  England  in  that  time  more 
than  twenty  million  millions  of  people,  or  more  than  could 
even  get  standing-room  there  ;  for  this  tendency  of  the  law  of 


LAB  OB. 


239 


human  fecundity  to  outstrip  the  results  of  the  law  of  returns 
fioin  land,  he  saw  no  remedy  except  in  checks  to  population, 
which  he  divided  into  the  positive  and  the  preventive ,  the 
first  of  which,  such  as  war,  famine,  and  disease,  increase 
the  number  of  deaths,  and  the  second  of  wrhich,  such  as 
prudence  in  contracting  marriage,  and  temperance  after 
marriage,  diminish  the  number  of  births ;  of  course  it  is 
better  that  the  checks  limiting  fecundity  should  come  into 
play,  rather  than  those  decreasing  longevity,  and  Malthus 
and  his  followers  were  at  great  pains  to  inculcate  upon  the 
laboring  classes  as  an  indispensable  condition  of  their  rise 
in  comforts  the  duty  of  later  marriages  and  fewer  children. 
Their  discussions  have  attracted  great  attention,  and  have 
been  supposed  to  be  very  pertinent  to  the  subject  of  wages ; 
but  since  the  abolition  of  the  corn-laws,  and  the  demonstrated 
ability  of  Great  Britain  under  free  trade  to  draw  on  the  fer¬ 
tility  of  the  'whole  world  for  the  maintenance  of  her  people, 
their  irrelevancy  to  economics  has  come  to  be  seen.  Experi¬ 
ence  has  shown,  that  the  strong  impulse  in  mankind  towards 
procreation  is  not  too  strong  for  the  purpose  intended ;  that, 
as  men  under  moral  and  religious  training  come  more  and 
more  under  the  influence  of  reason  and  affection,  the  preven¬ 
tive  checks  to  population  come  silently  and  effectually  into 
operation ;  and  that,  taking  the  world  at  large,  food  and 
comforts  have  more  than  kept  pace  with  the  stride  of  popu¬ 
lation,  since  its  inhabitants  as  a  whole  were  plainly  never 
so  well  fed  and  clothed  and  housed  as  now.  The  abstract 
antagonism  of  the  law  of  the  increase  of  population  with  the 
law  of  the  increase  of  food  may  be  admitted,  if  one  chooses 
to  insist  on  it ;  but  then  IIe  who  is  the  author  of  the  laws 
is  author  also  of  natural  counter-workings  of  them,  so  that 
a  practical  tendency  towards  their  coming  into  conflict  is 
confidently  denied.  Each  human  being  is  as  much  consti¬ 
tuted  by  Nature  to  receive  services  as  to  render  them,  in 
economics  each  without  exception  receives  when  and  because 
he  renders,  sud  each  alike  is  naturally  able  also  to  become  a 


240 


POLITICAL  ECONOMY . 


capitalist ;  economical  laws  present  no  obstacles,  that  we  can 
see,  to  all  men  becoming  rich ,  as  we  use  that  term  ;  most 
men  are  unwilling,  some  are  perhaps  unable,  to  fulfil  the 
moral  conditions  of  getting  rich  ;  wdiile,  we  may  depend  upon 
it,  the  famines  of  the  world  have  been  caused  more  by  the 
indolence  and  want  of  foresight  of  individuals,  and  by 
the  maladministrations  of  governments,  than  by  the  law 
of  population. 

3.  Many  say,  “  There  may  properly  be  combinations 
among  the  workmen  themselves  for  the  purpose  of  dictating 
the  rate  of  wages  to  the  employers.”  But  will  “strikes” 
accomplish  that  for  the  raising  of  wages  which  neither  gov¬ 
ernment  nor  public  opinion  can  effect?  A  strike  is  a  combi¬ 
nation  among  laborers  for  an  increase  of  wages,  by  which 
they  agree  to  stop  work  altogether  until  their  employers  shall 
comply  with  their  terms.  It  is  not  to  be  denied  that  work¬ 
men  thus  possess,  under  many  circumstances,  a  very  consid¬ 
erable  reserved  power  which  they  can  bring  to  bear  upon 
their  employers.  When  the  processes  of  production  are 
going  briskly  forward,  when  the  manufactory  is  thoroughly 
furnished  wdth  competent  hands,  and  profitable  orders  are 
in  waiting,  it  is  no  laughable  thing  for  the  owner  to  be  told, 
of  a  cloudy  morning,  that  his  hands  have  all  stopped  work, 
and  refuse  to  lift  a  finger,  until  he  shall  agree  to  pay  them 
wages  at  a  rate  which  they  themselves  dictate.  Of  course, 
his  first  impulse  is  to  discharge  every  man  of  them,  and 
endeavor  to  fill  his  factory  with  new  hands.  But  this  he 
cannot  always  do.  At  best  it  will  take  time.  Meanwhile 
his  wheel  or  engine  must  be  idle,  customers  be  lost,  orders 
unfilled,  and  profits  nowhere.  And  so,  many  an  employer 
has  surrendered  to  a  strike,  when  he  felt  that  it  was  all 
unjust,  rather  than  undergo  a  still  greater  loss.  It  is  ad¬ 
mitted  that  workmen  may  sometimes  strike  and  gain  their 
point,  but  it  is  none  the  less  true  for  all  that,  that  strikes 
are  false  in  theory  and  pernicious  in  practice ;  that  they 
spring  from  utter  misapprehension  of  the  true  principles  of 


LABOR. 


241 


wages ;  that  they  imbitter  relations  between  employers  and 
employed  which  ought  to  be  cordial  and  free ;  and  that  they 
rarely  or  never  are  permanently  advantageous  to  the  work¬ 
men  themselves. 

In  the  first  place,  then,  strikes  are  contrary  to  the  very 
old  adage,  that  it  takes  two  to  make  a  bargain.  If  we  express 
this  proverb  in  the  language  of  our  science,  it  will  take  some 
such  form  as  this :  When  two  men  have  mutual  services  to 
exchange,  let  them  come  to  a  fair  agreement  as  to  the  terms 
on  which  they  will  exchange.  Certainly,  let  each  make  the 
best  terms  he  can,  but  let  the  bargain  always  be  free.  If 
one  party,  who  happens  to  have  the  power  to  do  it,  uses  any 
thing  like  compulsion  upon  the  other,  it  ceases  so  far  forth 
to  be  a  bargain  at  all,  and  becomes  a  sort  of  robbery,  of 
which  in  some  cases  courts  will  take  cognizance.  Now, 
workmen  bring  a  certain  valuable  service  to  the  market,  just 
such  a  service  as  the  capitalist  wants,  and  he  has  to  offer 
just  such  a  service  as  they  want,  namely,  wages :  let  the  two 
parties  come  to  a  free  and  fair  agreement  on  the  terms  of 
their  exchange :  let  each  workman  by  all  means  make  the 
very  best  terms  he  can,  insisting  to  the  last  penny  on  all  he 
can  get  elsewhere,  for  the  value  of  his  service  is  determined, 
as  other  values  are  determined,  by  what  it  will  bring  :  let  the 
employer  do  just  the  same  on  his  side,  and  so  let  a  fair  bar¬ 
gain  for  the  time  present  be  struck.  This  is  a  very  good 
kind  of  striking  ;  and  the  more  intelligence  and  skill  and  self- 
respect  a  workman  has,  the  better  prepared  lie  is  to  strike  the 
bargain  and  secure  his  just  due  ;  and  if  the  employer  will  not 
yield  him  this,  let  him  have  done  with  it  at  once  and  go  else¬ 
where.  Or,  if  a  just  bargain  has  once  been  struck,  and  cir¬ 
cumstances  so  alter  that  the  workman  thinks  he  can  rightfully 
demand  more  wages,  let  him  frankly  and  fully  demand  the  n, 
remembering  always  that  it  is  an  exchange  he  has  to  do  wdh, 
and  that  it  takes  two  to  make  a  bargain.  If  he  cannot  get 
for  liis  service  what  he  thinks  he  ought  to  get,  what  he  thinks 
the  service  is  worth  in  another  market,  let  him  exercise  his 


242 


POLITICAL  ECONOMY. 


perfect  right  to  quit  and  go  elsewhere.  All  this  is  fair  and 
above-hoard  aud  legitimate. 

But  a  strike  is  wholly  different  from  this,  in  that  it  brings 
a  kind  of  compulsion  into  play.  A  bargain  should  be  broken , 
if  at  all,  just  us  it  was  made ,  with  the  two  parties  face  to  facef 
and  everybody  else  aloof;  and  a  new  bargain  should  be  made , 
just  as  the  old  one  was,  with  the  two  parties  face  to  face ,  and 
everybody  else  aloof.  But  a  combination  among  workmen  to 
leave  an  employer  in  the  lurch,  and  especially  a  combination 
which  forces  into  its  ranks  by  cajoling  or  menaces  those 
who  are  unwilling  to  join  it,  as  is  so  commonly  the  case 
in  strikes,  is  not  only  contrary  to  the  inmost  nature  of  a 
bargain,  but  also  of  itself  a  sort  of  confession  of  the  injus¬ 
tice  of  the  claim.  If  the  claim  be  just,  there  is  no  occasion 
to  extort  it.  If  the  value  of  the  service  rendered  be  equal  to 
the  sum  demanded,  and  especially  if  this  can  be  obtained 
elsewhere,  there  is  no  need  of  conference  and  combination 
and  conspiracy.  Let  each  man  tell  his  employer  the  facts, 
and  if  this  prove  ineffective,  let  him  go  quickly  where  he 
?an  get  the  most  for  his  service.  That  this  is  not  done,  that 
neans  are  brought  to  bear  upon  the  employer  which  are  not 
ordinarily  used  in  bargains, — means  of  the  nature  of  a 
kreat  —  that  the  justice  of  the  claim  is  not  relied  on  in 
.  case  where,  more  than  anywhere  else,  justice  can  enforce 
j  self,  that  full  and  free  explanations  are  not  had,  that  no 
\  dice  is  given,  that  great  damage  is  expected  by  their 
a  tion  to  accrue  to  the  employer,  all  this  seems  to  forget 
ti  it  the  transaction  between  employers  and  employed  is  a 
caje  of  pure  exchange,  a  simple  bargain  of  one  service 
ag  mist  another  service. 

A.  bad  principle  always  works  badly  in  practice ;  and  the 
principle  that  underlies  strikes  is  so  opposed  to  the  funda- 
mei  lal  nature  of  exchange,  that  we  might  expect  beforehand 
that  it  would  work  badly.  As  a  matter  of  fact,  it  works 
bad.  /  enough  both  upou  employers  and  emplo3^ed,  because 
stril.  ->s  only  take  place  in  relation  to  employers  who  operate 


LABOR. 


248 


with  accumulations  of  capital  more  or  less,  and  on  vvlnse 
minds  consequently  strikes  will  work  to  lessen  the  wages- 
portion.  The  production  of  most  material  commodities  is 
a  joint  process,  in  which  capital  and  labor  both  conspire, 
and  the  gross  returns  of  which  belong  wholly  to  the  capital¬ 
ists  and  laborers.  If  these  returns  be  large,  the  two  parts 
into  which  they  are  divided,  namely,  the  wages  of  labor  and 
the  profits  of  capital,  will  also  be  large  ;  and  therefore,  it  is 
for  the  interest  of  both  laborers  and  capitalists  alike  to  make 
these  returns  as  large  as  possible.  Wages  being  taken  out 
of  these  returns,  the  rest  is  gross  profits,  or,  gross  profits 
being  taken  out,  the  rest  is  wages  ;  and  it  makes  no  prac¬ 
tical  difference  in  this  division,  whether  or  not  some  or  all 
of  the  wages  have  been  advanced  to  the  laborers  while  the 
production  was  still  going  forward,  since  the  wages  in  all 
cases  come  sooner  or  later  out  of  the  proceeds  of  the  joint 
process.  The  capitalist  has  no  motive  to  pay  ultimate  wages 
out  of  his  previous  accumulations,  and  ought  not  to  be  ex¬ 
pected  to  do  so,  and  were  he  compelled  to  do  so,  it  would 
soon  be  all  the  worse  for  his  laborers,  since  these  accumu¬ 
lations  are  the  gross  capital  feeding  the  wages-portion.  It 
is  not  only  rightful  for  the  capitalist,  but  needful  also  for 
the  laborers,  that  wages,  whether  advanced  or  not  to  the 
laborer  by  the  capitalist  out  of  his  own  or  borrowed  capital, 
shall  really  be  paid  out  of  the  proceeds  of  that  on  which  the 
tabor  is  now  expended  ;  whatever,  therefore,  tends  to  lessen 
these  proceeds,  necessarily  lessens  actual  wages.  Any  inter¬ 
ruption  of  the  process  of  production  by  strikes,  all  consequent 
imbittered  relations  between  employers  and  employed,  and 
any  want  of  hearty  working  together  of  the  labor  with  the 
capital,  will  diminish  the  gross  returns  of  the  two  parties 
to  the  joint  process,  and  thus  injure  at  once  both  wages  and 
profits. 

Let  us  suppose  a  strong  case  just  to  show  the  principle 
involved,  namely,  that  it  takes  three  months  to  realize  the 
returns  in  some  branch  of  production,  and  that,  when  the 


244 


POLITICAL  ECONOMY. 


workmen  are  paid  off  at  the  end  of  one  cycle,  they  strike  at 
the  beginning  of  the  next,  and  both  parties  hold  out  for 
three  months.  What  is  now  the  chance  of  higher  wages 
for  the  workmen?  It  shall  go  hard  even  if  they  get  as 
much  as  before  !  And  why  ?  Because  the  factory  has  stood 
idle,  the  owner  has  lost  three  months’  profits  on  the  wholft 
investment  connected  with  it,  he  has  lost  customers  by  the 
strike,  and  the  whole  course  of  his  business  is  disarranged ; 
the  workmen  have  lost  wages  for  three  months,  have  been 
supported  meantime  out  of  their  little  funds  laid  by  or  from 
the  contributions  of  others,  and  they  are  not  in  as  good  a 
position  either  morally  or  pecuniarily  to  drive  a  favorable 
bargain  with  their  employer  as  before ;  besides,  by  thus 
inflicting  a  loss  upon  themselves,  they  have  found  an  oppor¬ 
tunity  of  inflicting  a  loss  upon  their  employer,  in  conse¬ 
quence  of  which  the  wages-portion  is  demonstrably  less  than 
it  would  otherwise  have  been,  and  actual  wages  in  all  proba¬ 
bility  will  be  less  for  the  next  cycle.  So  far  as  this  point 
is  concerned,  there  is  no  sense  or  reason  in  the  common 
jealousy  of  workmen  towards  employers,  and  in  the  too 
common  absence  of  conciliation  towards  the  employed  on  the 
part  of  employers.  Their  duties  and  their  relations  are 
reciprocal ;  and  neither  party  can  expect  all  the  forbearance 
to  be  exercised  upon  the  other  side.  There  is  no  real  oppo¬ 
sition  of  interests  between  them,  for  they  are  partners  in  the 
same  concern.  Laborers  who  are  intelligent,  prudent,  skil¬ 
ful,  courteous,  will  infallibly  get  their  due ;  and  employers 
who  are  humane,  urbane,  fair,  will  find  their  account  in  it. 

This  course  of  argument  is  strongly  confirmed  by  authen¬ 
tic  facts  and  statistics.  Mr.  Wright,  Chief  of  the  Bureau  of 
Labor  in  Massachusetts,  in  his  Report  for  1880,  gave  a 
succinct  account  of  all  strikes  in  that  State  from  their  bes-in- 

o 

ning  in  1830.  They  were  159  in  all,  of  which  109  were 
unsuccessful,  18  apparently  successful,  16  compromised,  6 
partly  successful,  and  10  “result  unknown.”  In  Great 
Britain  during  the  year  1878,  there  occurred  277  strikes,  of 


LABOR. 


245 


which  only  4  were  successful,  17  were  compromised,  and 
256  were  failures.  The  direct  losses  of  laborers  in  the  vari¬ 
ous  strikes  in  Massachusetts  for  the  fifty  years,  to  say  noth¬ 
ing  of  the  losses  of  the  capitalists,  were  enormously  large  ; 
of  which  a  good  instance  is  given  in  the  single  town  of  Fall 
River,  where,  in  several  strikes,  mostly  in  1875  and  1879, 
the  sum  of  $1,400,000  was  voluntarily  forfeited  by  the 
idleness  of  the  operatives.  Fields  of  labor  are  often  lost  by 
strikes,  as  well  as  direct  wages,  of  which  a  notable  instance 
was  the  introduction  of  Chinese  labor  into  North  Adams  in 
1871  to  the  permanent  displacement  of  the  native  shoe¬ 
makers.  Even  if,  after  an  interval  of  idleness,  a  rise  of 
wages  be  secured,  the  striker  rarely  stops  to  calculate  how 
long  he  will  have  to  work  at  the  higher  rate  just  to  make 
up  what  he  has  lost.  If  the  strike  be  for  5  °f0  increase 
of  pay,  and  one  month’s  wages  at  the  old  rate  be  lost  by 
it,  it  will  take  l.G  years  to  make  it  up  at  the  new  rate; 
if  two  months  be  lost  in  idleness,  3.2  years  must  be  spent 
in  making  up  the  loss  ;  and  if  three  months  be  lost,  it  will 
be  4.8  years  before  he  will  have  the  least  gain  from  his 
increased  pay.  Is  not  that  paying  too  dear  for  the  whistle? 
Mr.  Wright’s  conclusions  are  so  apt,  that  we  will  quote 
them:  (1)  “  Strikes  generally  prove  powerless  to  benefit  the 
condition  of  the  wages-classes ;  ”  (2)  “ Strikes  tend  to  de¬ 
prive  the  strikers  of  work;  ”  and  (3)  “ Strikes  lead  to  im¬ 
providence ,  and  are  demoralizing  in  their  effect  upon  the 
workingmen.” 

4.  Lastly,  many  say :  “Co-operation  is  a  scheme  likely 
to  raise  the  wages,  and  permanently  improve  the  condition, 
of  some  classes  of  laborers.”  This  is  a  matter  that  was 
much  agitated  in  Europe,  and  somewhat  also  in  the  United 
States,  during  the  third  quarter  of  the  19th  century;  but 
the  interest  felt  in  it  is  now  much  less  than  formerly,  owing 
to  the  failures  that  have  mostly  attended  the  attempts  to 
put  the  scheme  into  practice.  The  idea  is,  that  certain 
laborers  within  a  given  class  combine  of  their  own  accord, 


246 


POLITICAL  ECONOMY. 


either  to  purchase  their  necessaries  in  common  and  at  whole - 
sale,  hence  at  cheaper  rates  because  avoiding  all  projits  oj 
the  middlemen;  or,  more  especially,  to  engage  in  the  joint 
production  of  the  commodities  they  are  familiar  with,  the 
laborers  furnishing  the  capital  from  their  little  hoards  or 
borrowing  it  on  the  strength  of  their  individual  or  associated 
credit,  managing  the  business  themselves ,  all  being  co-part¬ 
ners,  and  of  course  all  sharing  pro  rata  the  profits  of  the  con - 
cem.  All  this  is  well ;  and  in  countries  where  laborers  have 
been  under  traditional  disabilities,  it  may  be  in  some  cases 
very  promotive  of  their  self-respect,  activity,  frugality,  and 
general  welfare  ;  but  any  one  can  see  that  no  new  economic 
principle  is  involved  in  the  plan.  As  in  all  other  produc¬ 
tion,  so  here,  there  must  be  (1)  capital  from  some  source, 
(2)  steady  and  skilful  labor,  and  (3)  superintendence  or 
management  of  the  business.  It  is  at  the  third  point  that 
schemes  of  co-operation  have  mostly  broken  down.  The 
faculty  of  good  management  is  rare ;  the  organizing  and 
executive  ability  needful  to  carry  through  any  scheme  of  co¬ 
operation  will  not  come  upon  call ;  if  any  of  the  co-operators 
chance  to  possess  it,  the  scheme  may  succeed,  although  he 
who  is  conscious  of  having  it  will  prefer  to  use  it  for  his  own 
gain  in  his  own  way,  to  say  nothing  of  the  practical  impos¬ 
sibility  of  any  man’s  working  with  the  same  spirit  when 
the  gain  or  loss  is  to  be  largely  another’s  as  when  it  is  to 
be  wholly  his  own  ;  moreover,  it  has  been  well  said,  “it  is 
impossible  to  hire  commercial  genius  or  the  instincts  of  a 
skilful  trader;  ”  so  that,  while  there  is  no  trouble  about  the 
workmen  uniting  the  character  of  capitalist  and  laborer  in 
their  own  persons,  and  no  doubt  that  they  will  work  harder 
and  more  skilfully  while  sharing  profits  as  well  as  receiving 
wages,  it  is  still  true,  that  the  difficulty  of  securing  a  real 
“  captain  of  industry,”  and  thus  a  perfect  organization  and 
management  of  the  whole  business,  puts  the  scheme  of  co¬ 
operation  out  of  the  question  as  a  means  of  raising  wages, 
or  promoting  the  general  welfare  of  laborers. 


LAB  OB. 


247 


In  this  country,  where  there  is  nothing  to  hindei  any 
laborer  from  becoming  a  capitalist,  where  the  savings-banks 
are  open  to  the  smallest  gains,  where  nothing  is  more  com¬ 
mon  than  for  two  or  more  workmen  to  organize  a  firm  to 
carry  on  some  branch  of  business,  where  most  of  the  capi¬ 
talists  proper  were  formerly  laborers  proper,  and  where  the 
shares  of  most  of  the  joint-stock  companies  are  open  to 
everybody  who  has  the  means  to  buy  them,  there  is  onty  one 
consideration  that  seems  to  justify  any  special  jealousy 
of  laborers  as  such  towards  capitalists  as  such ;  and  that  is 
the  fact,  that  Legislation  every  now  and  then,  sometimes 
on  a  small  scale  and  then  on  a  gigantic  one,  now  by  means  of 
corporate  charters  and  then  by  other  ways  more  indirect  and 
effective,  does  confer  certain  extraordinary  privileges  upon 
capital.  So  long  as  capital  and  labor  rest  solely  on  their 
natural  rights,  neither  can  have  the  advantage  of  the  other ; 
and  so  far  as  each  recognizes  their  identity  of  economic 
interest  and  the  consequent  reciprocity  of  obligation  and 
effort,  the  prosperity  of  each  will  build  up  the  other ;  but, 
on  the  other  hand,  so  far  forth  as  advantage  is  given  to 
capital  by  law,  it  is  necessarily  unjust  to  labor,  and  ulti¬ 
mately  injurious  to  capital  also  ;  and,  in  this  case,  laborers, 
seeing  just  what  it  is  that  hurts  them,  must  combine  and 
strike,  not  capital  (their  friend),  but  a  piece  of  perverted 
legislation  (their  enemy).  The  Legislature,  whether  State 
or  National,  cannot  be  too  scrupulous  in  this  whole  matter, 
because  the  proper  limits  of  legislative  action  on  econom¬ 
ical  subjects  are  pretty  narrow,  and  a  fierce  friction  begins 
as  these  limits  are  widened ;  in  general,  capital  and  labor 
should  each  have  the  utmost  liberty  of  action  compatible 
with  social  security,  and  the  equal  rights  of  each  will  best 
be  reached  by  leaving  both  to  take  care  of  themselves  sub¬ 
ject  only  to  general  laws  relating  to  person  and  property. 
But  if  the  Legislature  yields  to  special  claims  of  capital,  it 
must  expect  to  hear  labor  also  knocking  at  its  doors  :  if,  for 
example,  capitalists  “strike”  for  artificial  profits  by  means 


248 


POLITICAL  ECONOMY. 


of  a  protective  tariff,  why  may  not  laborers  u  strike  ”  for 
artificial  wages  ?  The  former  have  set  the  latter  a  bad  ex- 
ample  ;  and  much  more  than  is  commonly  supposed  of  the 
recent  discontent  of  labor  in  the  United  States  is  due  to  this 
greed  of  a  few  capitalists  demanding  and  securing  for  them¬ 
selves  special  privileges  under  the  law.  Let  alone.  Legis¬ 
latures,  whether  State  or  National,  are  not  wise  enough, 
and  never  will  be,  to  settle  any  of  the  great  questions  in¬ 
volved  between  capitalists  and  laborers  ;  to  settle,  for  exam¬ 
ple,  how  high  wages  any  class  of  capitalists  shall  pay,  or 
how  many  hours  per  day  adult  laborers  shall  work ;  and 
even  to  try  to  settle  any  such  things  as  these  by  legislation 
is  an  economic  abomination. 

In  our  discussion  thus  far  of  labor  and  wages,  we  have 
been  under  the  disadvantage  of  not  knowing  exactly  what 
Capital  is  and  the  part  that  it  plays  in  Production.  The 
next  chapter  will  throw  out  light  upon  these  points,  and 
later  discussions  of  wages-questions  will  confirm  these  pre¬ 
liminary  ones.  We  have  also  leen  under  the  disadvantage 
in  common  with  all  economists  of  being  compelled  to  treat 
of  laborers  as  if  they  formed  a  quite  distinct  class  by  them¬ 
selves,  and  of  capitalists  as  if  they  also  were  a  class  by 
themselves  quite  distinct  from  the  laborers  ;  while,  as  a  mat¬ 
ter  of  fact,  and  especially  in  this  country,  laborers  are  very 
often  at  the  same  time  capitalists,  as  the  returns  of  all  our 
savings-banks  show,  and  nearly  all  capitalists  are  at  the 
same  time  laborers,  at  least  to  the  degree  of  superintend¬ 
ing  actively  their  own  capital.  It  alters  no  principles,  that 
laborers  shade  thus  into  capitalists,  and  that  most  persons 
of  either  class  belong  also  at  the  same  moment  to  the  other 
class  ;  since  labor  and  capital  play  their  distinct  parts  in 
Production  without  reference  to  the  question,  whether  the 
same  person  furnish  one  factor  or  both.  It  may  be  added, 
that  Production  is  most  likely7  to  be  successful  in  those 
branches  in  which  it  is  most  difficult  to  draw  the  line  be¬ 
tween  the  laborers  and  the  capitalists,  because  there  any 


LABOR. 


249 


conflict  between  labor  and  capital  is  extremely  unlikely  to 
take  place. 

It  has  been  proven  many  times  over  by  experience,  and 
emphatically  by  the  recent  experience  of  the  United  States, 
that  the  legalized  use  of  an  inferior  money  operates  to  the 
greater  disadvantage  of  laborers  as  such ,  than  of  capitalists 
as  such.  It  harms  both  ;  and  it  would  seem  at  first  sight  as 
if  those  capitalists  who  are  in  the  receipt  of  fixed  incomes, 
as  annuities,  would  suffer  more  from  bad  money  than  any¬ 
body  else,  and  perhaps  they  do  ;  but  laborers  as  a  whole  class 
find  their  wages  late  to  rise  in  the  universal  rise  of  prices  con¬ 
sequent  upon  a  depreciated  money,  because  as  a  class  they 
are  slower  to  perceive  the  change  in  the  purchasing-power  of 
the  medium  than  capitalists  are,  and  are  consequently  slower 
to  insist  on  their  just  rights  in  the  now  altered  circumstances  ; 
while  the  fall  of  wages,  late  to  rise  under  a  poor  money,  is 
apt  to  be  prompt  enough  under  a  return  to  better  money, 
because  employers  see  the  change  at  once,  and  act  quickly 
in  accordance  with  their  own  interests.  In  general,  it  may 
be  said,  that  all  departures  from  sound  legislation,  particu¬ 
larly  in  regard  to  money  and  taxation,  are  sure  to  make 
against  the  laboring  classes,  and  the  only  certain  remedy  for 
such  legislation  is  in  their  own  intelligence  and  vigilance. 

Laborers  work  for  the  sake  of  wages,  but  it  is  an  honor 
to  human  nature  that  there  are  very  few  men  who  would  be 
willing  to  work  at  any  wages  in  doing  things  that  they  know 
to  be  useless.  For  example,  to  carry  stones  from  one  heap 
to  another,  and  then  carry  them  back  again,  for  no  ulterior 
purpose,  is  a  task  that  few  would  be  content  to  perform 
even  for  very  high  wages.  Man  is  not  a  machine.  His 
mind  must  be  somewhat  interested  in  the  work  of  his  hands ; 
and  this  is  another  point  at  which  our  field  of  Economics 
touches  the  field  beyond  of  Aims  and  Ends. 

We  may  summarize  thus  :  — 

1.  Labor  is  physical  or  mental  effort  which  demands  for 
itself  something  in  return. 


250 


POLITICAL  ECONOMY. 


2.  That  return  is  called  wages. 

3.  Wages  depend  on  the  great  law  of  Supply  and  Demand.. 

4.  Other  influences  on  ivages  are  hut  secondary  at  best. 

5.  Labor  may  be  loosely  divided  into  common ,  skilled,  and 
professional. 

6.  Employers  may  be  loosely  divided  into  those  who  pay 
wages  for  a  present  gratification,  and  those  who  pay  wages 
for  an  ultimate  profit. 

7.  Capital  thus  has  intimate  relations  with  wages,  and  the 
two  are  not  antagonistic. 

8.  Bad  money  is  worse  for  wages  than  for  profits,  but  is 
bad  enough  for  both. 

9.  Governments  have  small  functions  in  wages-questions , 
as  in  economics  generally. 


CAPITAL. 


251 


CHAPTER  VI. 


CAPITAL. 


The  second  grand  requisite  of  Production  is  Capital ;  and 
we  are  now  to  learn  what  this  is,  how  it  arises,  how  it  works, 
and  what  its  vast  influence  is  on  the  ever-enlarging  world  of 


exchanges. 


1.  Labor,  as  we  saw  in  the  last  chapter,  is  an  original  ele¬ 
ment  in  Production,  because,  in  getting  something  ready  to 
sell  and  selling  it,  effort,  physical  or  mental  or  both,  begins, 
accompanies,  and  concludes  the  process.  The  various  forces 
of  Nature,  which  will  be  treated  of  at  length  in  the  next 
chapter,  are  also  an  original  element  in  Production,  and  we 
have  already  learned  that  these  powers  work  freely  and  tire¬ 
lessly  in  the  service  of  man.  But  labor  can  only  go  a  very 
little  way,  and  natural  agents  can  only  go  a  very  little  way, 
without  the  constant  aid  of  the  other  requisite,  Capital. 
Here  is  another  of  the  trinities  of  Political  Economy.  Labor 
leans  on  its  counterpart,  —  capital ;  and  power-agents  of  all 
kinds  ply  their  work  in  production  and  plough  their  way  past 
obstacles  through  their  instrument, — capital.  But  capital 
is  not  an  original  element,  because  it  is  itself  a  product  of 
the  other  two  elements.  Every  form  of  capital  is  indeed 
such  a  product,  but  is  at  the  same  time  so  esseutial  a  factor 
in  further  production,  that  labor  and  power- agents  amount  to 
but  little  without  its  constant  and  accumulated  co-operation. 
Power-agents  are  free  ;  labor  demands  a  return  ;  and  capital, 
which  is  a  sort  of  embodied  labor,  demands  also  a  reward 
for  its  use ;  the  owner  of  the  capital  is  frequently  a  distinct 
person  from  the  present  laborer ;  but  Political  Economy  is 


252 


POLITICAL  ECONOMY. 


able  to  show  that  there  is  no  natural  opposition  of  interest 
between  capital  and  labor,  that  capital  is  as  dependent  on 
present  labor  as  labor  is  dependent  on  capital,  that  each  is 
equally  interested  in  the  prosperity  of  the  other,  and  that 
thus  a  deep  and  admirable  harmony  subsists  in  this  part,  as 
in  every  other  part,  of  the  social  organism. 

The  word  Capital  is  derived  from  the  Latin  caput ,  a  head, 
a  source,  and  gives  intimation  in  its  etymology  of  its  sci¬ 
entific  meaning.  The  word  caput  is  often  used  in  classical 
Latin  for  a  sum  of  money  put  out  to  interest,  and  its  deriva¬ 
tive  capitate  is  also  used  in  the  same  sense,  at  least  in  medie¬ 
val  Latin ;  and  from  this  form  of  the  word  have  come  into 
English  not  only  Capital ,  but  also,  by  corruption,  Cattle  and 
Chattels.  Flocks  and  herds  were  at  one  time  the  principal 
riches  of  our  Saxon  ancestors,  and  also  the  principal  means 
of  increasing  their  riches,  and  in  process  of  time  the  same 
root-word  came  to  be  spelled  differently  as  applied  to  animals 
(Cattle),  or  to  inanimate  things  of  value  (Chattels).  The 
notion  implied  in  the  Latin  caput  and  in  the  English  source 
came  along  in  all  these  words,  and  hence  Capital  may  be 
scientifically  defined  in  accordance  with  its  root-meaning  as 
Any  valuable  thing  outside  of  man  himself  which  becomes  a 
Means  in  further  production. 

We  are  willing  to  take  the  risks  with  this  definition.  Our 
previous  definitions  of  Capital,  while  in  substance  equivalent 
to  the  one  now  given,  did  not  so  distinctly  exclude  personal 
services  from  the  category  of  Capital.  The  boundary  line 
between  Labor  and  Capital  cannot  be  clearly  drawn,  unless 
the  powers  of  man  himself,  so  far  as  these  come  into  play  in 
personal  services,  are  discriminated  from  the  external  com¬ 
modities  and  claims,  which  alone  can  be  properly  capitcd. 
Labor  is  the  exertion  of  physical  and  mental  powers  for  the 
sake  of  a  return,  which  is  wages :  Capital  is  some  product, 
always  a  commodity  or  a  claim,  reserved  for  the  sake  of  an 
increase  to  present  values  through  its  employment  produc¬ 
tively,  which  increase  is  called  Profits.  Personal  powers 


CAPITAL. 


253 


cannot  be  parted  with,  although  their  exercise  gives  bi.'th  to 
value  ;  capital  can  always  be  parted  with,  and  become  fruit¬ 
ful  in  the  hands  of  another.  When  it  is  said  that  a  young 
man’s  integrity,  or  his  acquired  skill,  is  his  “capital,”  the 
word  is  used  in  a  metaphorical,  and  not  in  a  scientific  sense ; 
since  the  meaning  is  simply,  that  these  qualities  are  like  capi¬ 
tal  in  some  respects.  Mr.  Carey  is  careless  of  this  impor¬ 
tant  distinction,  and  defines  capital  as  “the  instrument  by 
means  of  which  man  obtains  mastery  over  Nature,”  includ¬ 
ing  in  it  the  physical  and  mental  powers  of  man  himself, 
and  thus  hopelessly  confuses  the  boundaries  between  capital 
and  labor.  Mr.  Macleod  defines  capital  as  “any  economic 
quantity  used  for  the  purpose  of  profit,”  making  it  expressly 
inclusive  of  professional  talents,  and  this  opens  his  defini¬ 
tion  to  the  previous  objection.  Our  definition  seems  to  have 
the  merit  at  once  of  distinctness  and  comprehensiveness  :  it 
will  cover  all  the  cases,  obviate  many  difficulties,  and  take 
the  life  out  of  many  disputes. 

It  is  plain  from  what  has  already  been  said,  that  the  new 
class,  Capital,  is  a  smaller  class  under  the  old  great  class, 
Values  ;  and  that  the  same  article  of  value  may  be  at  one 
time  capital,  and  at  another  non-capital,  according  to  its 
destination.  Only  that  value  is  capital,  that  is  reserved  as 
a  means  to  further  production,  and  from  whose  use  accord¬ 
ingly  an  increase  or  profit  is  expected.  A  value  must  be 
contemplated  as  existing,  before  it  can  possibly  become  cap¬ 
ital,  because  it  is  a  distinct  purpose  of  the  owner  to  use  it 
for  a  profit  that  capitalizes  it,  that  is,  that  transforms  it  from 
a  general  purchasing- power  into  a  special  form  of  purchasing- 
power,  Capital.  The  sole  purpose  is  to  use  now  that  value 
in  such  a  way  as  that  a  larger  value  may  accrue  by  means 
of  it.  For  example,  money  in  the  hands  of  individuals  is 
sometimes  capital  and  sometimes  not,  according  as  they  pro¬ 
pose  to  use  it,  while  the  whole  money  of  the  nation  consid¬ 
ered  as  belonging  to  the  whole  nation,  is  wholly  capital, 
because  the  only  motive  in  minting  it  is  to  increase  by  means 


254 


POLITICAL  ECONOMY. 


of  it  the  national  gains.  So  credits,  that  is,  claims  for  the 
payment  of  money  or  other  valuables,  are  capital  or  not, 

J 

according  as  they  are  kept  for  convenient  use,  or  for  accru¬ 
ing  profit.  Many  products  are  devoted  to  the  gratification 
of  present  desires,  without  any  reference  to  the  rendering  of 
future  services  by  means  of  their  help,  and  such  products, 
though  valuable,  are  not  capital  at  all :  many  other  products, 
such  as  tools,  raw  materials,  and  moneys  loaned  on  interest, 
are  altogether  capital.  Any  piece  of  transferable  property 
may  become  capital,  either  as  retained  by  the  present  ownei 
for  the  sake  of  a  greater  than  its  present  value  to  be  obtained 
by  means  of  it,  or  as  purchased  by  another  person  with  the 
same  intent ;  and  the  whole  mass  of  capital,  then,  in  any 
country  is  the  whole  mass  of  those  products,  of  whatever 
kind,  which  are  destined  in  the  mind  of  their  owners  to  be 
retained  as  an  aid  towards  rendering  future  services  to 
Society. 

2.  How  does  capital  arise?  We  have  seen  that  there  are 
obstacles  which  lie  in  the  way  of  the  gratification  of  men’s 
desires  in  all  directions,  and  that  these  obstacles  can  only  be 
removed  by  human  effort.  When  a  man  devotes  himself  to 
one  set  of  these  obstacles,  with  a  view  to  surmount  them,  he 
is  not  long  in  discovering,  that  if  he  had  certain  tools,  his 
work  would  be  greatly  facilitated ;  and  having  discovered 
that,  it  will  not  be  long  before  he  will  attempt  himself,  or 
induce  others  to  attempt,  to  invent  such  tools.  The  beaver 
gnaws  down  the  tree  wfith  his  teeth,  from  generation  to  gen¬ 
eration  ;  but  man  is  a  being  more  nobly  endowed  than  the 
beaver,  and  no  sooner  had  he  occasion  to  fell  trees,  than 
something  of  the  nature  of  an  axe  suggested  itself  to  his 
ingenuity.  It  is  true,  that  his  earliest  attempts  at  axe-mak¬ 
ing  were  probably  of  the  rudest  sort,  but  just  as  soon  as 
any  thing  was  devised,  whether  of  flint  or  shell  or  metal,  that 
rendered  easier  the  labor  of  felling  a  tree,  capital  made  a 
beginning  along  that  line  of  obstacles.  Among  the  more 
gifted  races,  progress  in  this  direction  was  perhaps  more 


CAPITAL. 


255 


rapid  than  we  are  wont  to  think  it  was,  since  Tubal- caiu, 
even  in  the  times  before  the  flood,  is  said  to  have  u  ham¬ 
mered  ^  all  kinds  of  implements  out  of  copper  and  iron” 
(Gen.^iv.  22). 

We  are  at  no  loss,  then,  to  explain  the  origin  of  capital : 
it  is  found  in  the  motive  that  exists  everywhere,  and  that 
always  existed,  to  lessen,  if  possible,  a  given  irksome  effort 
that  is  the  condition  of  a  given  satisfaction.  Tools  are 
invented  and  employed  for  no  other  reason  than  this,  that, 
by  means  of  their  help,  the  human  effort  is  lessened  rela¬ 
tively  to  the  given  satisfaction.  The  powers  of  Nature,  such 
as  those  which  make  the  grain  grow,  bring  the  tree  down, 
turn  the  water-wheel,  impel  the  locomotive,  and  send  the 
message  round  the  world,  all  stand  ready  to  slave  in  the 
service  of  man  ;  but  in  order  to  make  their  aid  available  for 
human  purposes,  there  must  be  a  plough,  an  axe,  a  wheel, 
an  engine,  an  electric  machine.  These,  and  all  other  imple¬ 
ments  whatsoever,  from  the  tiniest  needle  to  the  most  pon¬ 
derous  engine,  are  products  created  and  retained  for  the 
sake  of  further  production.  They  are  capital.  They  are 
not  capable  of  yielding  in  themselves  an  ultimate  satisfac¬ 
tion  to  human  wants,  but  they  mediate  between  the  powers 
of  Nature,  which  they  enable  us  to  make  available  for  our 
purposes,  and  those  ultimate  satisfactions.  This  origin  of 
capital  gives  the  key-note  to  its  universal  use  and  indefinite 
expansion  :  easier  methods  are  always  in  order,  finer  imple¬ 
ments  take  the  place  of  coarser,  and  machinery  of  some 
sort  is  forcing  its  way  more  and  more  into  all  the  fields  of 
hand  labor.  Since  it  requires  tools  to  make  tools,  the  prog¬ 
ress  of  this  branch  of  capital  was  comparatively  slow  at 
first ;  but,  since  every  advance  in  mechanical  contrivance 
makes  still  further  advances  easier,  there  is  a  natural  ten¬ 
dency,  which  facts  abundantly  exemplify,  to  a  more  and 
more  rapid  progression  in  the  number  and  perfection  of  all 
implements  of  production.  The  same  motive  that  impelled 
to  the  first  invention,  has  impelled  to  the  whole  series  of 


256 


POLITICAL  ECONOMY. 


inventions  since,  and  will  constantly  impel  to  further  inven¬ 
tions  till  the  end  of  time.  This  motive, — and  there  is  no 
motive  that  actuates  man  more  universal,  —  is,  to  lessen  the 
onerous  effort  of  human  muscle,  and  to  throw  upon  the  ever- 
willino;  shoulders  of  Nature  more  and  more  of  the  burden 
of  production.  Every  step  of  this  progress  gives  birth  to  a 
larger  and  larger  proportion  of  satisfactions  relatively  to 
efforts ;  marks  an  increasing  control  on  the  part  of  man 
over  the  powers  of  Nature  ;  and  gives  promise  for  the  time 
to  come  of  greater  advantages  still  in  both  these  two  direc¬ 
tions.  And  it  is  because  capital  brings  gratuitous  natural 
forces  into  service,  and  the  more  so  as  capital  progresses, 
that  the  value  of  those  things  created  by  the  aid  of  capital 
tends  constantly  to  decline  as  compared  with  the  value  of 
those  things,  in  whose  production  capital  less  conspires ;  and 
in  the  chapter  following  the  next  will  be  developed  from  this 
point  one  or  two  important  laws  of  value. 

3.  How  capital  works  may  perhaps  be  best  illustrated  by 
the  action  of  railroads,  which  are  an  important  part  of  the 
capital  of  every  civilized  country.  The  general  function  of 
all  capital  is  to  facilitate  production,  to  make  exchanges  easy 
and  many  by  removing  obstructions  of  all  kinds  and  lessen¬ 
ing  onerous  human  efforts ;  and  the  railroad  is  a  piece  of 
capital,  a  product,  designed  to  lessen  the  natural  obstruc¬ 
tions  to  exchanges  made  by  time,  distance,  and  inequalities 
of  earth-surface.  The  ocean  is  somewhat  like  the  railroad 
in  these  respects,  with  this  peculiarity,  that  the  ocean  road¬ 
way  fortunately  costs  nothing,  it  is  not  a  product,  and  so  it 
is  free  to  all  users.  The  railroad  is  a  valuable  thing,  and 
charges  must  be  made  to  them  who  use  it  to  re-imburse  those 
who  constructed  it,  but  it  is  a  grand  law  of  this  form  of  capi¬ 
tal  certainly,  that  less  and  less  needs  to  be  charged  to  each  ton 
of  freight  and  to  each  passenger  carried  as  the  exchanges 
are  multiplied,  to  further  which  the  railroad  is  built  as  a 
means.  Edward  Atkinson  has  gathered  figures  from  official 
sources,  which  put  this  law  beyond  the  reach  of  question. 


CAPITAL. 


257 


For  example,  in  the  ten  years  1870-79,  the  Lake  S.iore  and 
Michigan  Southern  railroad  increased  its  freight  traffic  202%  , 
decreased  its  charge  per  ton  per  mile  57 J%  (from  one  cent  and 
a  half  to  .64),  and  increased  its  earnings  from  freight  22^%. 
In  the  eleven  years  1869-79,  the  New  York  Central  and  Hud¬ 
son  River  railroad  increased  its  freight  traffic  289%,  decreased 
its  charge  per  ton  per  mile  67%  (from  2.38  cents  to  .79),  and 
increased  its  earnings  30%.  One  cent  a  ton  per  mile  deduc¬ 
tion  on  8,000,000  tons  moved  1,300  miles  is  a  saving  to  the 
transporters  of  $104,000,000  ;  so  that,  the  interest  of  the  rail¬ 
road  is  equally  the  interest  of  the  whole  country.  The  use  of 
capital  lessens  the  cost  of  every  thing  in  whose  production 
the  capital  conspires  ;  and  the  railroad  is  able  steadily  to  re¬ 
duce  its  charge  for  transportation,  because  it  learns  by  expe¬ 
rience  to  throw  more  and  more  of  its  work  upon  the  free 
forces  of  Nature,  and  because  the  people  intrust  it  constantly 
with  more  work  to  do,  which  enables  its  agencies  to  be  more 
continually  and  economically  employed. 

Railroad  mileage  more  than  trebled  in  the  United  States 
from  New  Year’s  1865  to  New  Year’s  1882,  that  is  to  say, 
went  up  from  33,908  to  something  over  100,000  miles.  If 
we  suppose  the  average  cost  of  the  round  mileage  to  have 
been  $30,000  a  mile,  then  the  whole  cost  of  the  roads  would  be 
$3,000,000,000,  truly  a  costly  piece  of  capital.  But  then,  it 
can  be  proved,  that  the  actual  reduction  in  charges  on  freight 
alone  in  ten  years  from  the  rate  in  1870  to  the  rate  in  1879 
more  than  equals  that  whole  cost  of  the  roads  !  The  declared 
value  of  the  grain,  meat,  and  dairy  products,  exported  from 
the  United  States  in  1880,  was  $389,000,000,  and  their  weight 
9,400,000  tons  ;  now,  if  this  weight  were  moved  on  the  aver¬ 
age  1,300  miles  to  the  seaboard,  and  if  there  were  a  saving 
in  railroad  service  of  one  cent  a  mile  per  ton  as  compared 
with  1870,  then  the  saving  constituted  26.72%  of  the  total 
value  of  those  exports.  As  we  saw  in  the  last  chapter  that 
physical  labor  consists  simply  in  moving  things  with  reference 
to  an  economic  result,  so  we  may  now  see  that  railroads  and 


258 


POLITICAL  ECONOMY. 


\ 


many  other  forms  of  capital  are  contrived  simply  to  help  to 
move  things.  On  the  average  each  man,  woman,  and  child, 
in  the  United  States,  eats  very  nearly  a  barrel  of  flour  a  year, 
and  so  50,000,000  barrels  of  flour  have  to  be  moved  each 
year  to  the  places  where  the  people  take  their  food  ;  and  it  is 
a  comfort  to  think  that  such  is  already  the  perfection  of  our 
railroad  system,  that  a  barrel  of  flour  may  be  moved  from 
Chicago  to  Boston,  1,000  miles,  for  fifty  cents,  and  from 
almost  any  point  in  the  North-west  where  wheat  is  ground 
to  almost  any  point  on  the  Atlantic  seaboard  for  less  than  a 
dollar.  An  adult  in  good  health  eats  nearly  three  pounds 
of  solid  food  a  day,  or  1,095  pounds  a  year,  and  such  are  the 
present  appliances  of  capital  that  a  day’s  wages  of  a  common 
mechanic  in  Massachusetts  will  pay  for  the  transportation  of 
his  year’s  bread  and  meat  from  Chicago  to  Boston. 

Such  a  startling  result  as  an  average  annual  reduction  of 
the  cost  of  railroad  service  of  $320,000,000  for  the  decade 
ending  in  1880,  a  sum  more  than  equal  to  the  average  annual 
revenue  of  the  United  States  in  the  same  time,  has  not  been 
reached  except  in  spite  of  artificial  obstacles  of  legislation. 
A  tariff  tax  of  $28  a  ton  on  steel  rails  imported  doubled  the 
price  during  a  part  of  the  decade  of  all  steel  rails  used ,  and 
so  far  forth  hindered  the  beneficent  action  of  this  form  of 
capital.  Then  railroading  is  a  new  thing  in  the  world,  and 
of  course  there  has  been  much  blundering  in  management, 
and  more  blundering  in  Congress  and  in  State  Legislatures 
iu  all  sorts  of  legislation  both  hostile  and  favorable.  After 
all,  the  railroads  have  paid  for  themselves  over  and  over 
again,  in  the  lessened  cost  of  all  products,  in  the  multipli¬ 
cation  of  exchanges  of  every  name,  in  the  rise  in  the  value 
of  old  lands  and  in  the  extension  of  profitable  cultivation  to 
new  lands,  and  in  manifold  other  ways  which  need  not  now 
be  told.  Hence  they  illustrate  perhaps  better  than  any  thing 
else  the  way  in  which  capital  in  general  works  to  increase 
the  power  and  multiply  the  satisfactions  of  men. 

4.  As  we  have  just  seen  that  capital  in  the  form  of  rail- 


CAPITAL. 


259 


roads  soon  pays  for  itself  and  becomes  a  perennial  sou  rce  of 
profit,  so  let  us  now  see  that  capital  in  all  forms  does  the 
same  thing,  and  at  the  same  time  opens  the  way  for  new 
savings  and  new  profits.  As  railroad  begets  railroad,  so 
capital  in  general  breeds  capital.  Even  the  ordinary  annual 
interest  of  money,  if  regularly  compounded  with  the  princi¬ 
pal,  will  double  that  principal  in  a  very  few  years.  But  the 
rate  of  interest,  which  is  usually  reckoned  by  the  year,  must 
not  be  confounded  with  the  rate  of  profit,  which  may  accrue 
by  the  day,  by  the  week,  by  the  month,  or  shorter  irregular 
periods.  The  current  rates  of  profit  reckoned  by  the  year 
are  always  much  higher  than  the  current  rates  of  interest 
reckoned  in  the  same  way  ;  for  otherwise  men  would  never 
borrow  money  for  the  sake  of  carrying  on  their  business. 
Some  interesting  facts  are  mentioned  by  Macleod  (Econ. 
Phil.  p.  219)  as  occurring  in  the  retail  provision  trade  of 
Paris.  Turgot  instances  that,  in  his  time,  the  money  lenders 
charged  the  petty  dealers  two  sous  a  week  for  the  loan  of 
three  francs.  That  is  interest  at  the  rate  of  173%  per 
annum.  But  if  the  dealer  sold  his  three  francs’  worth  of 
victuals  for  three  francs  and  a  half  every  day,  as  is  likely, 
his  profit,  omitting  Sundays,  would  be  at  the  rate  of  5,210% 
per  annum.  That  this  way  of  doing  business  is  still  kept 
up  in  Paris,  as  it  used  to  be  also  in  London,  appears  from 
a  speech  of  a  member  of  the  late  Legislative  Assembly  of 
France,  who  says,  that  a  five-franc  piece  borrowed  in  the 
morning  will  buy  provisions  that  may  be  sold  for  eight  francs 
in  the  course  of  the  day ;  twenty-five  centimes  are  paid  in 
the  evening  without  complaint  as  the  interest  on  the  money  ; 
that  is  at  the  rate  of  1,800%  per  annum  ;  but  the  rate  of 
profit  is  21,000%  per  annum ,  or  twelve  times  the  rate  of  in¬ 
terest.  Even  at  a  very  small  ratio  of  profit  to  principal  on 
each  transaction,  a  money  capital  turned  quickly  over  accu¬ 
mulates  with  a  startling,  almost  incredible  rapidity. 

Equally  wonderful  is  the  power  of  capital  in  the  form  of 
tools  and  machines  to  hasten,  facilitate,  and  accumulate  pro- 


260 


POLITICAL  ECONOMY . 


duction.  Perhaps  as  good  an  instance  as  any  is  the  trowel 
of  the  mason  and  plasterer.  It  is  nearly  his  only  tool,  but 
an  absolutely  indispensable  one.  Without  it  he  can  do  noth¬ 
ing  at  all :  with  it  he  can  do  a  great  deal.  Time  seems  to 
have  made  but  few  improvements  in  this  primitive  instru¬ 
ment  ;  its  cost  is  slight,  say  one  dollar ;  it  will  last  a  long 
time,  say  an  entire  year ;  it  is  almost  constantly  in  the 
mason’s  hand  from  morning  till  night,  and  so  is  earning  a 
profit  all  the  time  ;  for  it  must  be  remembered,  that  the  more 
constant  the  use  of  any  form  of  capital,  the  sooner  it  pays 
for  itself  and  the  more  profitable  its  agency  becomes  ;  and 
thus  this  case  of  the  trowel  may  serve  as  an  illustration  of 
the  influence  in  production  of  all  forms  of  capital  from  the 
simplest  to  the  most  elaborate.  Every  tool  or  machine, 
itself  capital,  enables  the  laborer  to  avail  himself  of  some 
free  natural  force  to  aid  him  in  his  work,  and  so  the  three 
requisites  of  production,  labor  and  capital  and  power- agents, 
are  always  united  in  the  use  of  any  tool. 

5.  The  influence  of  capital  on  production  will  be  more 
fully  seen  as  we  examine  the  source  and  the  reward  of  the 
capital.  The  source  of  capital  is  always  in  Saving  or  absti¬ 
nence.  Even  Cicero  very  truly  says:  “Optimum  et  in 
privatis  familiis  et  in  republica  vectigal  est  parsimonm.” 
Frugality  -is  the  best  means  of  revenue  as  well  in  private 
families  as  in  the  State.  It  is  a  distinct  act  of  will  that 
transforms  any  valuable  thing,  whether  money  or  other,  into 
an  instrument  of  future  production  ;  because  tlje  valuable 
thing  might  be  used  or  sold  for  the  purposes  of  present  enjoy¬ 
ment  ;  and  if  it  be  set  apart  in  order  to  help  get  something 
ready  to  sell  in  the  future,  the  owner  must  have  some  reward 
for  this  act.  The  reward  of  capital  is  technically  called  profits : 
just  as  the  reward  of  labor  is  technically  called  wages.  Profits 
are  the  legitimate  reward  of  a  service  just  as  much  and  in  the 
same  sense  as  wages  are  the  legitimate  reward  of  a  service. 
The  distinctive  service  of  the  capitalist  as  such,  as  distin¬ 
guished  from  the  service  of  the  laborer,  consists  in  his  volun- 


CAPITAL. 


261 


tary  abstinence  from  the  use  and  enjoyment  of  that  which  he 
contributes  in  aid  of  further  production.  If  a  man  puts  a 
thousand  dollars,  which  he  might  spend  upon  his  immediate 
gratifications,  into  a  machine  to  be  used  in  his  business,  the 
money  immediately  becomes  capital ;  the  owner  practises 
abstinence,  and  for  this  abstinence  justly  expects  a  reward. 
This  reward  we  call  profit.  The  expected  profit  is  the  only 
motive  for  the  abstinence.  He  will  not  be  content  simply  to 
get  his  thousand  dollars  back,  for  that  he  has  now :  he  must 
have  hi 3  thousand  dollars  with  a  profit.  Suppose  A  to  be  a 
manufacturer  of  flax  fabrics,  B  to  be  a  farmer  in  his  neighbor¬ 
hood,  and  C  an  expert  mechanic  acquainted  with  the  current 
modes  of  spinning  and  weaving  flax.  A  has  a  capital  of 
$10,000  invested  in  his  business,  in  buildings,  machinery, 
naterials,  and  wages-fund,  which  nets  him  $1,000  a  year 
clear  profit.  At  the  end  of  the  year,  the  question  with  him 
is,  whether  he  shall  spend  this  $1,000  unproductively  in  im¬ 
mediate  gratifications,  or,  adding  it  to  his  capital  stock, 
increase  his  business  with  it.  If  he  concludes  to  do  the 
latter,  he  must  forego  the  use  and  enjoyment  of  his  $1,000 
for  the  present,  he  must  practise  abstinence  ;  and  this  he  will 
not  do,  and  ought  not  to  do,  except  in  view  of  increased 
profits  to  accrue  from  his  business  at  the  end  of  the  next 
year.  If  more  flax  is  to  be  spun  and  woven  in  his  factory, 
more  money  must  be  invested  to  buy  more  materials,  to  pay 
more  laborers,  or  to  pay  for  more  or  better  machinery.  His 
contribution  to  the  prospectively  increased  production  is 
$1,000,  transformed  by  his  intention  from  simple  property 
to  capital,  devoted  to  production  by  a  voluntary  abstinence 
from  its  present  use  and  enjoyment,  in  view  of  a  future  re¬ 
ward  or  profit.  It  is  a  service  rendered  by  one  man  to  a 
joint  process  to  be  performed  by  many,  and  gives  him  a  just 
claim  to  a  portion  of  the  product.  Is  exertion  irksome  ?  So 
is  abstinence.  Are  wages  legitimate?  So  are  profits.  B  as 
a  farmer  might  devote  all  his  fields  to  growing  food  and  fruits 
for  the  gratification  of  himself  and  family,  but  since  A  now 


262 


POLITICAL  ECONOMY. 


wants  more  flax  fibre  for  his  factory,  he  gives  up  a  part  of 
his  acres  to  growing  flax,  and  this  becomes  a  part  of  A’s 
capital  in  the  form  of  raw  material ;  and  the  money  received 
for  it  may  become  capital  in  B’s  hands  by  being  spent  either 
in  agricultural  improvements,  or  in  buying  additional  land. 
The  mechanic  C,  by  giving  time,  exertion,  and  money  to  the 
work,  may  invent  an  improved  machine  for  spinning  flax,  to 
be  introduced  into  A’s  factory.  The  machine  becomes  a  part 
of  A’s  capital,  and  the  money  paid  to  C  for  his  machine  is 
partly  wages,  a  reward  for  the  labor  bestowed  on  its  construc¬ 
tion,  and  parti}7  profits,  to  replace  to  C  the  money  used  in 
making  the  machine,  together  with  a  reward  for  his  absti¬ 
nence  from  the  use  of  this  money  until  the  machine  was  sold. 
Thus  we  see  that  capital,  whether  in  the  form  of  wages-fund, 
materials,  or  implements,  is  always  the  result  of  abstinence ; 
and  that  whoever  abstains  from  the  present  enjoyment  of  any 
thing,  in  order  that  that  something  may  contribute  to  a  future 
production,  renders  an  essential  service ;  and,  consequently, 
that  the  reward  of  such  abstinence,  or  profit,  is  just  as  legiti¬ 
mate  as  are  wages. 

This  is  very  clearly  seen  in  the  common  case  in  which  one 
man  loans  capital  to  a  second,  to  be  used  by  that  second  in 
his  own  business.  Brooks  has  a  thousand  dollars  in  hand 
which  he  is  at  liberty  either  to  enjoy  unproductively,  or  to 
employ  himself  productively,  with  the  assurance  of  a  profit ; 
but  is  willing  to  forego  the  use  of  it  for  a  year  in  favor  of 
Smith,  who  is  anxious  to  enlarge  his  business.  •  Brooks’ 
abstinence  is  a  clear  service  to  Smith  ;  and  at  the  end  of  the 
year,  therefore,  Smith  not  only  refunds  the  thousand  dollars 
borrowed,  but  also  sundry  other  dollars  besides  as  a  specific 
reward  for  this  specific  service.  If  Smith  keeps  the  money 
ten  years  or  twenty,  it  is  no  more  than  just  that  he  should 
pay  this  sum  every  year  till  the  principal  is  refunded,  because 
the  service  is  every  year  repeated,  the  abstinence  is  still  prac¬ 
tised  in  his  favor.  Therefore,  capital  once  acquired  by  absti¬ 
nence,  becomes,  if  the  abstinence  be  continued,  a  legitimate 


CAPITAL. 


263 


source  of  perpetual  revenue  to  the  owner,  as  wel.  as  a  per¬ 
petual  source  for  the  maintenance  of  laborers.  Whoever 
transforms  his  property  into  capital,  establishes  thereby  a 
permanent  fund  whence  he  may  draw  an  income,  and  labor¬ 
ers  support,  in  perpetuity ;  because  the  capital,  though  con¬ 
stantly  disappearing  in  production,  as  constantly  re-appears 
in  products,  with  profits  added  :  a  fact  which  shows  the  folly 
of  the  popular  opinion  which  regards  more  favorably  the  man 
who  spends  his  money  freely  and  unproductively,  than  the 
man  who,  turning  his  money  into  capital,  building  a  mill,  or 
making  other  permanent  investments,  creates  by  that  means 
a  fund  in  the  community,  out  of  which  permanent  wages  and 
permanent  profits  can  be  paid.  The  strength  of  the  motives 
to  abstinence  in  any  country  will  depend  largely  upon  the 
character  of  the  government,  and  the  organization  of  society 
there  ;  these  motives  being  generally  strongest  where  liberty 
of  action,  equality  of  privileges,  and  security  of  property 
are  the  greatest. 

6.  It  is  time  now  to  observe  the  forms  which  capital 
assumes.  The  whole  class  Capital  is  divided  into  two 
sub-classes,  namely,  Circulating  Capital  and  Fixed  Capital. 
Circulating  Capital  comprises  all  those  capitalized  products, 
the  returns  for  the  sale  of  which  are  derived  at  once  and 
once  for  all:  Fixed  Capital  comprises  all  those  capitalized 
products  which  are  purchased  or  held  with  a  view  of  deriving 
an  income  from  their  use.  u  The  test  of  fixed  and  circulat¬ 
ing  capital  is  the  inquiry,  Are  returns  secured  by  the  reten¬ 
tion.  or  by  the  transfer,  of  the  particular  product?  Tools 
in  the  hands  of  him  who  uses  them  are  fixed,  in  the  hands 
of  him  who  manufactures  them,  circulating  capital.’ ’  (Bas- 
com’s  Pol.  Econ.  p.  71.)  Circulating  Capital  will  be  found 
in  the  following  forms  :  (1)  all  raw  materials  ;  (2)  all  wages 
paid  out  in  view  of  an  ultimate  profit ;  (3)  completed  pro¬ 
ducts  on  hand  for  sale  ;  and  (4)  all  products  bought  and 
held  for  the  sake  of  resale.  Fixed  capital  will  be  found 
under  one  or  other  of  the  following  heads  :  (1)  all  tools  and 


264 


POLITICAL  ECONOMY. 


machinery;  (2)  all  buildings  used  for  productive  purposes; 
(3)  all  permanent  improvements  on  land ;  (4)  all  invest¬ 
ments  in  aid  of  locomotion,  such  as  railroads,  canals,  ships, 
and  every  thing  subsidiary  to  these ;  (5)  all  products  loaned 
or  rented,  or  retained  for  that  purpose  ;  and  (6)  the  national 
money  as  a  whole. 

In  manufacturing  and  mining  industry,  a  new  term  has 
come  into  common  use  within  the  past  few  years,  which  needs 
to  be  explained  in  this  connection.  The  term  is  “plant.” 
The  plant  is  made  up  wholly  of  items  of  fixed  capital,  like 
machinery,  improvements,  personal  property  (not  supplies), 
draught  animals,  fixtures,  and  so  on,  but  does  not  include 
the  real  estate  of  factories  or  the  mine  itself  as  a  mineral 
yielder  (Dr.  Pumpelly  in  Census  of  1880). 

As  civilization  advances,  and  the  aggregate  of  all  forms 
of  capital  enlarges,  there  is  a  tendency  towards  a  relative 
increase  of  fixed  capital,  as  compared  with  circulating. 
This  disproportion  would  become  greater  than  it  actually 
does  become,  were  it  not  for  the  fact  that  almost  all  forms 
of  fixed  capital  are  subject  to  a  rapid  deterioration  of  value, 
due  partly  to  usual  wear  and  tear,  and  partly  to  the  progress 
of  improvements,  in  consequence  of  which,  what  is  old  soon 
becomes  antiquated.  In  nothing,  perhaps,  is  actual  cost  of 
production  so  useless  a  guide  to  present  value,  as  in  ma¬ 
chinery,  and  other  forms  of  fixed  capital.  New  and  easier 
methods  are  being  constantly  invented,  and  the  result  of 
their  introduction  is  to  lessen  the  value  of  the  old  apparatus, 
and  consequently  to  lessen  the  value  of  the  aggregate  accu¬ 
mulations  of  fixed,  as  compared  with  the  current  value  of 
circulating,  capital.  Production  looks  perpetually  to  ends ; 
and  estimates  means  just  in  proportion  to  their  present  effi¬ 
ciency  to  reach  the  end  proposed.  If  the  end  can  be  reached 
by  a  cheaper  process,  in  any  department,  the  value  of  the 
former  means  will  fall ;  and  the  value  of  the  former  results 
secured  by  these  means,  other  things  being  equal,  will  fall 
also.  About  the  middle  of  the  century  it  was  estimated  by 


CAPITAL. 


265 


Mr.  Carey  ( Social  Science ,  III.  56),  that  the  proportion  of 
circulating  capital  to  fixed  in  France,  was  one  to  eight ;  in 
England,  one  to  three ;  and  in  the  United  States,  three 
to  five ;  proportions  which  he  believed  to  be  much  higher 
in  favor  of  fixed  capital  than  formerly  obtained  in  those 
countries.  It  is  also  worthy  of  notice,  that  there  may  be  a 
too  rapid  and  general  conversion  of  circulating  into  fixed 
capital  for  the  present  best  interest  of  certain  classes  of  per¬ 
sons.  If  all  carriage-makers,  for  example,  instead  of  sell¬ 
ing  their  carriages  outright,  and  making  new  carriages  with 
the  proceeds,  should  let  them  out  on  hire,  receiving  their 
value  only  in  instalments,  it  is  evident  that  they  could  not 
make  so  many  carriages  as  before,  and  that  their  workmen 
would  suffer  by  the  change  of  method.  So  too,  if,  while  a 
national  debt  is  being  contracted  for  war  expenditure,  gen¬ 
eral  business  become  dull,  and  capitalists,  preferring  the 
steady  income  from  the  national  bonds  to  the  uncertain  gains 
of  business,  largely  invest  their  circulating  capital  in  bonds, 
it  is  very  clear  that  man}*  laborers  would  suffer  a  disadvan¬ 
tage.  When  man}*  of  the  small  farms  of  Scotland  were 
turned  into  sheep  walks,  and  some  of  the  circulating  agri¬ 
cultural  capital  was  used  to  enlarge  estates  with  that  view, 
it  was  said,  that  there  was  much  temporary  distress  among 
the  agricultural  population.  In  the  ten  years,  1871-81, 
828,000  acres  of  grain-land  and  228,000  acres  of  green- 
crop  land  in  Great  Britain  were  converted  into  permanent 
pasture,  and  an  annual  return  of  £8,000,000  formerly  de¬ 
rived  from  these  crops  thereby  disappeared  (James  Caird). 
Pasturing,  whether  of  sheep  or  cattle,  employs  far  fewer 
laborers  than  culture.  The  wonderful  productiveness  of 
railroads  as  a  form  of  capital  has  already  been  noted ;  aud 
yet  even  railroads  may  be  built,  have  been  built,  too  fast 
and  too  far  for  the  best  interest  of  capital  as  such  ;  because 
a  railroad  as  fixed  capital  becomes  a  fixed  fact,  and  cannot 
change  its  form  and  place,  as  the  circulating  capital  out  of 
which  it  was  built  was  well  able  to  do  ;  and  therefore,  a  mania 


266 


POLITICAL  ECONOMY. 


for  building  railroads  is  to  be  dreaded  like  other  manias,  lest 
it  withdraw  capital  too  rapidly  from  a  more  profitable  circu¬ 
lating  form  and  put  it  beyond  recall  into  a  fixed  form. 

7.  We  come  now  to  the  most  important  point  in  this  chap¬ 
ter,  namely,  the  relations  of  capital  to  labor,  and  to  that 
law  of  the  distribution  of  the  products  between  capitalists 
and  laborers,  which  was  first  propounded  by  Mr.  Carey, 
and  which  fully  justifies  his  claim  to  be  regarded  as  an 
important  contributor  to  the  science  of  Political  Economy. 
We  shall  unfold  the  whole  matter  in  our  own  way,  and  in 
strict  accordance  with  the  principles  already  laid  down. 

Capitalists  are  all  those  who  have  laid  by  some  valuable 
tilings  (the  fruit  of  previous  labor  and  capital)  to  be  used 
as  a  means  for  further  production  ;  but  this  further  produc¬ 
tion  cannot  be  had,  unless  labor  also  be  united  with  the  cap¬ 
ital  ,  since  capital  by  itself  alone  can  produce  nothing ;  and 
consequently,  capitalists  are  the  principal  people  who  desire 
steadily,  and  are  able  to  pay  for,  the  services  of  laborers. 
It  is  true,  the  capitalists  are  looking  only  at  profits,  just  as 
the  laborers  are  looking  only  at  wages  ;  but  the  possession 
of  capital  and  the  desire  for  profits  put  the  capitalists  into 
a  good  position  to  make  exchanges  with  laborers,  whose 
desire  for  a  return  in  the  shape  of  wages  puts  them  into  a 
good  position  to  make  the  exchanges.  Capital  does  not  hire 
labor,  as  many  economists  phrase  it ;  persons  and  not  things 
are  ultimate  in  Political  Economy,  and  personifications  of 
things  are  always  confusing  in  science ;  but  capitalists,  be¬ 
cause  they  are  such,  and  because  capital  not  united  with 
labor  both  remains  barren  and  becomes  less,  desire  to  make 
a  trade  with  laborers,  who,  desiring  zvages  for  their  part, 
are  able  to  work  up  the  raw  material,  tend  the  machinery, 
and  dispose  of  the  products,  and  thus  enable  the  capitalists 
to  realize  profits.  It  is  the  old  case  over  again  of  a  mutual 
sale,  — of  two  persons  standing  opposite  each  other  to  make 
a  mutually  advantageous  trade.  There  can  be  no  deep- 
seated  antagonism  between  capitalists  and  laborers,  any 


CAPITAL. 


267 


i 


more  than  between  any  other  two  classes  of  men  able  and 
anxious  to  make  exchanges  with  each  other.  Unless  there 
may  be  profits  there  will  be  no  capital,  because  men  will  not 
practise  abstinence  without  the  hope  of  a  reward ;  but  also 
without  the  laborers  there  can  be  profits  by  no  possibility, 
since  these  are  the  agents  by  whom  profits  are  realized  ;  and 
therefore  the  very  presence  of  capital  in  any  community 
becomes  expressed  through  the  capitalists  as  a  demand  for 
laborers.  The  more  capital  accumulates  in  any  community, 
the  greater  must  be  the  demand  for  laborers  ;  and  the  greater 
the  demand  for  laborers,  the  greater  so  far  forth  the  reward 
of  labor,  or  wages ;  and  therefore  laborers  as  such  are 
interested  in  nothing  so  much  as  in  the  increase  of  capital 
through  large  profits,  and  in  the  strength  of  those  motives 
to  abstinence  in  the  minds  of  capitalists,  out  of  which  cap¬ 
ital  springs. 

Laborers  are  every  way  the  economical  equals  of  capital¬ 
ists.  Laborers  offer  a  service  to  capitalists,  and  capitalists 
offer  a  service  to  laborers.  They  stand  man  to  man.  They 
exchange  to  the  mutual  advantage  of  both,  and  one  is  as 
independent  as  the  other.  The  workmen  may  hold  up  their 
heads.  They  offer  an  honorable  service  on  which  capital 
is  absolutely  dependent  for  its  existence.  They  offer  a  ser¬ 
vice  as  legitimate  and  as  respectable,  as  that  of  the  clergy¬ 
man  who  preaches  their  sermons  and  baptizes  their  children, 
and  are  paid  on  the  same  general  principles.  Let  no  em¬ 
ployer  feel  too  much  exalted  towards  his  workmen.  The 
money  he  renders  them  is  no  whit  better  than  the  work  they 
render  him.  The  exchange  is  honorable,  and  the  parties  to 
it  on  the  same  level  of  advantage.  They  are  as  necessary 
to  him  as  he  is  necessary  to  them.  As  a  capitalist  he  can¬ 
not  exist  without  them  ;  as  laborers  they  cannot  exist  with¬ 
out  him.  He  is  one  blade  of  the  shears,  they  are  the  other 
blade,  and  it  takes  both  blades  to  cut.  It  is  absurd  to  ask 
which  blade  cuts  most,  because  there  is  no  cutting  at  all, 
unless  both  blades  work  together. 


268 


POLITICAL  ECONOMY. 


But  this  is  not  all.  The  next  step  in  this  course  of  rea¬ 
soning  is  still  more  interesting  and  important.  Capitalists 
and  laborers  are  not  only  essential  to  each  other,  as  are  also 
all  other  parties  to  a  trade,  but  besides  each  of  these  classes  is 
constantly  bettered  by  the  prosperity  of  the  other.  If  capital¬ 
ists  are  realizing  a  good  round  rate  per  centum ,  each  will  be 
desirous  to  enlarge  his  business,  whether  as  active  operator 
or  lender,  and  to  employ  as  much  of  his  income  as  possible 
in  the  form  of  new  capital.  Of  course  this  process  increases 
capital.  If  men  constantly  put  their  profits  only  back  into 
their  business,  which,  under  a  high  rat q  per  centum ,  they  are 
strongly  inclined  to  do,  capital  increases  rapidly.  But  in¬ 
crease  of  capital  is,  in  its  very  nature,  an  increased  demand 
for  laborers.  An  increased  demand  for  laborers,  other 
things  being  equal,  infallibly  raises  wages ;  just  as  an  in¬ 
creased  demand  for  any  thing  else  raises  its  value.  There¬ 
fore,  laborers  are  directly  interested  in  the  prosperity  of 
capital,  because  the  prosperity  of  capital  leads  to  its  in¬ 
crease,  and  its  increase  leads  to  higher  wages.  As  a 'mat¬ 
ter  of  fact,  high  profits  and  high  wages,  so  far  from  being 
incompatible,  usually  accompany  each  other.  On  the  other 
hand,  the  capitalist  is  equally,  though  perhaps  not  so  direct¬ 
ly,  interested  in  the  prosperity  of  his  laborers.  It  is  not  a 
dead  loss  to  him  by  any  means  that  he  now  has  to  pay 
higher  wages  than  formerly,  because  this  is  no  game  of 
grab,  in  which  what  one  gains  another  loses  ;  it  is  rather 
a  case  of  joint  production,  in  which  two  parties  conspire, 
and  in  which  whatever  helps  to  enlarge  the  gross  amount 
produced,  helps  to  increase  the  share  falling  to  each  party. 
If  then,  as  they  undoubtedly  do,  high  wages  tend  to  make 
the  workmen  more  intelligent,  industrious,  frugal,  and  in¬ 
ventive,  they  are  not  a  loss  to  the  capitalist,  but  a  gain. 
Larger  gross  returns  are  thereby  secured.  Improved  intel¬ 
ligence  and  skill  of  workmen  affect  production,  just  as  im¬ 
proved  machinery,  secured  by  the  aid  of  capital,  affects  it. 
Both  alike  enlarge  the  aggregate  of  products  to  be  divided 


CAPITAL. 


269 


between  capitalist  and  laborer.  Now,  in  ths  division  of 
products  thus  rendered  larger  in  amount,  what  hinders  capi¬ 
tal  from  getting  a  fair  share?  When  a  firm  is  prosperous, 
are  not  all  the  partners  benefited  ?  All  that  is  produced  is 
to  be  divided ;  if  more  is  produced,  more  is  to  be  divided. 
Intelligent,  industrious,  skilful  workmen,  are  best  for  produc¬ 
tion,  are  best  for  the  capitalist,  and  therefore,  high  wages, 
which  tend  to  make  them  so,  and  which  are  a  consequence 
of  their  being  so,  are  to  be  paid  without  grudging.  When 
the  matter  is  sifted  to  the  bottom,  it  is  seen  that  capital  is 
as  much  interested  in  the  prosperity  of  labor,  as  labor  is 
interested  in  the  prosperity  of  capital.  All  legitimate  inter¬ 
ests  are  in  harmony. 

But  the  last  step  in  this  course  of  reasoning  is  the  most 
important  of  all.  We  are  now  to  prove  that  all  increase  of 
capital ,  while  it  redounds  to  the  benefit  of  cajoitalists ,  redounds 
in  a  still  higher  degree  to  the  benefit  of  laborers.  As  a 
country  grows  older  and  richer,  and  as  the  world  grows 
older  and  richer,  there  is  a  constant  and  general  tendency, 
subject  indeed  to  some  temporary  interruptions,  towards  a 
decline  in  the  rate  per  centum  for  the  use  of  capital.  The 
rate  of  interest  on  money  loaned,  and  the  rate  of  profits  on 
capital  used,  tend  all  the  while  to  go  down  as  capital  is  accu¬ 
mulated.  No  one  will  dispute  this  as  a  simple  fact  of  his¬ 
tory.  Three  centuries  ago  in  England  the  legal  rate  of 
interest  was  10  %,  while  now  the  current  rate  is  about  4  in 
that  country,  and  has  been  considerably  lower  than  that 
in  Holland,  although  in  both  countries  there  was  some  rally¬ 
ing  of  the  rate  as  the  last  quarter  of  the  century  set  in. 
During  the  first  years  of  mining  operations  in  California, 
from  8  to  15  °J0  a  month  with  security  of  real  estate  was 
paid  for  the  use  of  money,  which  enormous  rates  long  ago 
declined  to  rates  not  much  higher  than  those  paid  in  the 
States  along  the  Mississippi  River,  and  in  these  also  the 
rates  are  approximating  those  current  in  the  older  Eastern 
States.  This  admitted  fact,  that,  as  capital  increases  in 


270 


POLITICAL  ECONOMY. 


amount,  the  rate  for  its  use  declines,  is  just  what  we  might 
expect  as  a  corollary  from  the  proposition,  that,  other  things 
being  equal,  an  increased  Supply  of  any  thing  means  a  les¬ 
sened  Value  for  any  specific  part  of  it.  But,  while  there  is  a 
less  rate  ot  interest  or  profit  on  each  hundred  invested, 
there  are  also  many  more  hundreds,  and  consequently  there 
is  an  absolute  gain  to  capitalists  as  a  class,  and  both  an 
absolute  and  relative  gain  to  the  laborers  as  a  class.  Let 
us  take  to  figures.  Let  $100,000,000,  while  the  rate  of 
profit  is  six,  and  $500,000,000,  when  it  has  fallen  to  foui, 
be  expended  in  payment  of  simple  wages.  So  far  forth, 
the  value  of  the  products  to  be  divided  yearly,  will  be  repre¬ 
sented  respectively  by  $106,000,000  and  $520,000,000.  In 
the  first  case,  $6,000,000  is  profits,  and  $100,000,000  is 
wages.  In  the  second  case,  $20,000,000  is  profits,  and 
$500,000,000  is  wages.  Here  is  an  absolute  gain  to  capi¬ 
talists.  Profits  have  gone  up  from  six  to  twenty  millions, 
and  are  more  than  three  times  as  great  as  before.  But  wages 
have  gone  up  both  absolutely  and  relatively.  They  have 
risen  from  one  hundred  to  five  hundred  millions,  and  are  five 
times  as  great  as  before.  Profits  have  risen  in  the  ratio  of 
one  to  three,  but  wages  in  the  ratio  of  one  to  five.  This 
arithmetical  example  is  put  for  the  sake  of  illustration,  but 
the  principle  holds  good  in  every  case  where  the  rate  'per 
centum  goes  down  in  consequence  of  the  increase  of  capital, 
and  therefore  the  advantages  of  ever  enlarging  capital  are 
even  greater  to  the  laborers  as  a  class  than  to  the  capitalists 
themselves.  Most  assuredly,  if  capital  now  takes  less  out 
of  every  hundred,  more  is  left  to  labor.  Profits  and  wages 
are  reciprocally  the  leavings  of  each  other,  since  the  aggre¬ 
gate  products  created  by  the  joint  agency  of  capital  and 
labor  are  wholly  to  be  divided  between  them.  This  demon¬ 
stration  is  extremely  important ;  for  it  proves  beyond  a  cavil, 
that  the  value  of  labor  tends  constantly  to  rise,  not  only  as 
compared  with  the  value  of  the  material  commodities  which, 
by  the  aid  of  capital,  it  helps  to  create,  a  truth  we  have 


CAPITAL. 


271 


seen  before,  but  also  as  compared  with  the  value  of  the  ase 
of  its  co-partner  capital  itself  ;  and  therefore,  that  there  is 
inwrought  in  the  very  nature  of  things  a  tendency  towards 
equality  of  condition  among  men.  God  has  ordered  it  so. 
Self-interest  is  indeed  the  mainspring  of  movement  in  the 
economic  world ;  but  no  man  can  labor  intelligently  and 
productively  under  its  influence,  without  at  the  same  time 
benefiting  the  masses  of  men.  Ilis  very  savings,  produc¬ 
tively  employed,  are  poor  men’s  livings. 

8.  While  capital  always  takes  its  origin  in  the  frugality  of 
men  and  women,  its  profitableness  and  power  depend  very 
much  upon  the  degree  of  skill  with  which  it  is  used.  There 
is  no  inherent  power  in  capital  to  work  independently  for 
the  welfare  even  of  the  people  whose  choices  have  called  it 
into  being,  for  it  must  be  remembered  that  capital,  potent 
as  it  always  becomes  in  skilled  hands,  is  only  a  means  for 
further  production.  The  place  that  capital  shall  hold,  then, 
in  any  country,  will  depend  very  largely  on  the  character¬ 
istics  of  the  people  there  ;  first,  on  their  estimate  of  the 
future  as  compared  with  the  present,  and  consequently  on 
their  disposition  to  save,  and  second,  on  their  ability  to 
handle  what  has  been  saved  so  that  it  shall  pay  tribute  to 
a  brisk  and  wide  production.  In  both  these  respects,  the 
people  of  the  United  States  are  perhaps  as  fortunate  as  those 
of  any  other  countiy.  As  a  rule,  our  people  are  frugal 
and  thrifty ;  and  while  the  necessaries  of  life  no  longer 
content  them,  and  the  luxuries  of  one  generation  become 
the  common  comforts  of  the  next,  which  then  requires 
and  secures  new  luxuries,  the  statistics  of  savings-banks, 
the  lists  of  investors  in  government  and  other  stocks,  many 
new  railroads,  innumerable  new  and  improved  farms,  and 
other  forms  and  signs  of  capital,  all  show  that  the  saving  is 
silently  going  on  everywhere.  Besides,  our  people  are  inven¬ 
tive,  that  is,  they  know  how  to  make  natural  forces  do  more 
and  more  of  their  work ;  they  are  bold,  that  is,  they  are  will¬ 
ing  to  risk  capital  on  every  rational  chance  of  a  profit ;  the)7 


272 


POLITICAL  ECONOMY. 


combine  easily  their  capitals,  and  diverse  personal  abilities, 
in  great  undertakings  ;  they  are  not  afraid  of  each  other’s 
competition,  though  they  are  foolishly  afraid  at  present 
of  the  competition  of  foreigners  ;  they  have  learned  to  com¬ 
bine  cheapness  in  industrial  outlay  with  vigor  of  industrial 
enterprise,  so  that,  iu  the  general  manufactures  of  Massa¬ 
chusetts,  for  example,  the  fixed  and  quick  capital  employed 
is  only  about  one-half  the  value  of  the  annual  product,  and 
even  in  the  cotton  factory  the  capital  only  about  equals  the 
annual  product ;  the  ratio  of  capital  to  product  is  higher  in 
mines  than  in  manufactures,  —  for  instance,  in  the  census 
year  1880,  it  took  62J?  cents’  worth  of  capital  to  bring  out 
one  pound  of  copper  worth  on  the  average  17.46  cents,  in 
the  U.  S.  mines  east  of  the  100th  meridian  ;  and  then  too, 
our  people  as  a  rule  rally  quickly  from  industrial  failure  and 
times  of  depression. 

The  greatest  fortunes  in  this  country  in  our  time  have 
been  realized  in  connection  with  the  investment  of  capital 
in  the  means  of  transportation.  Nature  seems  to  be  partic- 
ularly  pleased  to  have  her  roughnesses  smoothed  out,  and 
her  distances  practically  shortened  ;  and  the  rewards  of  those 
wrho  have  a  genius  for  this  work,  or  ability  to  combine  into 
one  grand  system  of  benefit  the  scattered  and  thus  subor¬ 
dinate  efforts  of  others,  are  very  large  indeed ;  and  yet,  the 
public  advantage  in  these  cases  is  incomparably  larger  than 
the  private  emolument  of  the  projectors,  and  so  far  forth 
the  telegraph  magnates  and  the  railroad  millionnaires  may 
be  held  to  be  public  benefactors. 

9.  It  must  follow  from  all  that  has  preceded,  that  the 
vast  destructions  of  war  are  mainly  a  destruction  of  capital. 
War  cannot  be  carried  on  except  by  means  of  property  act¬ 
ually  existing,  nor  for  any  length  of  time  or  to  any  great 
extent  except  by  means  of  property  existing  in  the  form  of 
capital.  These  savings  previously  employed  productively 
are  the  source  whence  war-supplies  are  drawn  ;  the  capital 
is  absolutely  destroyed ;  the  war-debt  remaining  is  only  a 


CAT  IT A  L. 


278 


memorial  of  this  destruction,  and  an  obligatioi  resting  upon 
sombody  to  create  new  capital  with  which  to  replace  the  old  ; 
the  debt  does  not  cany  on  the  war,  but  transfers  the  capital 
from  individuals  to  the  government ;  and  war,  accordingly, 
is  the  greatest  enemy  to  exchanges,  because  it  annihilates 
a  portion  of  the  central  agencies  which  carry  them  forward. 

We  may  gather  up  into  the  following  propositions  the  sub¬ 
stance  of  the  present  chapter  :  — 

1.  All  capital  is  products  saved  for  further  use  in  produc¬ 
tion. 

2.  The  motive  for  the  saving  is  the  increase  accruing. 

3.  Mere  hoards  are  not  capital ,  hut  become  such  when  lent 
for  interest  or  otherwise  used  productively. 

_  i 

4.  The  more  capital  the  more  use  of  free  Nature ,  and  the 
more  demand  for  paid  laborers. 

5.  The  more  capital  the  larger  the  aggregate  of  values  pro¬ 
duced,  and  the  less  the  value  of  each  particular  of  the  aggre¬ 
gate. 

6.  The  more  capital  the  higher  the  rate  of  wages ,  and  the 
lower  the  rate  of  profit. 

7.  Profits  are  the  leavings  of  wages. 

8.  Fixed  capital  increases  relatively  to  circulating ,  and  both 
are  the  poor  man’ s  friend. 

9.  War  destroys  capital ,  communism  threatens  it,  strikes 
impair  it,  while  peace  and  good-will  reduplicate  it. 


274 


POLITICAL  ECONOMY. 


CHAPTER  VII. 

LAND. 

Labor  and  Capital,  two  of  the  three  requisites  of  Produc¬ 
tion,  have  now  been  fully  discussed.  It  remains  to  treat 
closely  of  Natural- Agents,  the  third  and  last  of  these  requi¬ 
sites,  and  more  especially  of  Land,  the  only  natural  agent 
that  presents  elements  of  dispute  and  difficulty.  It  is  con- 
ceded  by  all,  that  air  and  light  and  gravity  and  electricity 
and  other  natural  powers  disconnected  with  the  land  are  free 
for  all  to  use  at  will,  and  that  the  progress  of  invention  is 
nothing  in  the  world  but  the  shifting  off  of  parts  of  irksome 
human  labor  by  means  of  certain  forms  of  capital  upon  these 
gratuitous  forces,  which  work  without  money  and  without 
price.  But  when  it  comes  to  Land,  itself  originally  a  natural 
agent  of  vast  proportions,  and  to  such  things  as  waterfalls 
and  mines  inseparably  connected  with  the  land,  there  ap¬ 
pears  a  great  diversity  of  opinion.  The  Physiocrats  thought, 
that  land  was  property  in  an  eminent  sense,  that  it  alone 
should  bear  the  weight  of  taxes,  and  that  indeed  it  was 
the  ultimate  source  of  all  values.  Henry  George  thinks, 
that  private  property  in  land  is  an  abomination,  and  u  can¬ 
not  be  defended  on  the  score  of  justice. ”  Most,  if  not 
all,  of  the  second  school  of  economists  have  regarded  the 
amount  of  land-rents,  the  value  of  land  products,  and  the 
value  of  the  land  itself,  as  determined  in  a  quite  different 
way  from  all  other  values.  We  must,  accordingly,  go  cau¬ 
tiously  into  this  topic,  and  use  the  best  powers  we  have 
of  insight  and  reasoning,  in  order  to  understand  it ;  and 
if  this  one  condition  be  supplied,  there  is  no  danger  but  we 
shall  reach  clear  and  sound  results. 


LAND. 


275 


Let  one  thing  be  premised  before  we  begin,  namely,  that 
the  presumption  in  science  is  always  against  the  existence  of  a 
few  outlying  cases ,  whenever  the  induction  has  been  long  and 
carefully  conducted  by  many  persons,  and  the  generalization 
appears  on  all  other  grounds  to  be  sound  and  comprehensive. 
Indeed  the  best  test  of  scientific  definitions  or  generaliza¬ 
tions  is  found  in  those  seemingly  anomalous  cases  with  which 
all  science  has  to  do,  and  which  come  with  such  apparent 
reluctance  under  her  painstaking  classifications  ;  for,  if  defi¬ 
nitions  or  generalizations  reduce  into  order  these  outlying 
cases  without  violence,  as  well  as  cover  easil}'  the  more  cen¬ 
tral  phenomena,  there  is  at  once  created  the  strongest  evi¬ 
dence  of  their  correctness.  Now  the  questions  relating  to 
the  value  of  land  and  its  products  have  been  among  the 
most  vexed  questions  of  Political  Economy,  have  exercised 
a  vast  amount  of  ingenuity,  and  have  led  to  careful  obser¬ 
vations  in  the  whole  field  of  agriculture,  while  the  diverging 
views  that  have  been  taken,  the  arguments  adduced,  the 
conclusions  drawn,  and  the  spirit  manifested,  in  these  dis¬ 
cussions,  form  the  most  unrefreshing  portion  of  the  history 
of  the  science.  These  questions  in  their  economical  aspects, 
however  bitterly  debated  in  the  past  and  present,  and  though 
almost  uniformly  regarded  as  anomalous  matters  to  which 
peculiar  principles  must  be  applied,  are  approaching,  even  if 
they  have  not  already  reached,  a  scientific  and  satisfactory 
solution.  It  seems  to  us  that  the  means  are  now  at  hand  for 
combining  what  is  true  in  all  these  views,  and  for  settling 
the  disputes  for  all  time.  We  feel  sure  that  all  the  parties 
are  right  in  some  respects  and  are  wrong  in  other  respects, 
and  are  not  without  hopes  of  being  able  in  this  chaptc  r  to 
reconcile  the  differences,  and  to  show  completely  that  the 
varying  values  of  land  and  of  its  products  and  of  its  rents 
arise  and  vary  from  human  services  rendered  and  received, 
precisely  as  all  other  values  do,  and  consequently  that  our 
previous  definitions  and  classifications  apply  here  without  a 
break. 


276 


POLITICAL  ECONOMY. 


1.  There  is  one  grand  distinction  to  be  made  at  the  out¬ 
set,  namely,  that  between  land  as  a  physical  thing ,  which 
God  made  and  gave  to  men  in  common,  and  land  as  a  valua¬ 
ble  thing ,  made  such  through  the  action  of  human  desires 
and  human  efforts.  It  is  confusion  at  this  point,  that  has 
given  rise  to  most  of  the  current  fallacies  in  the  land  dis¬ 
cussion.  As  God  made  it  and  gave  it  to  men,  the  whole 
earth  was  one  vast  natural  agent.  Every  thing  on  its  sur 
face  and  underneath  its  surface  wras  plainly  free  to  all  corn¬ 
ers  to  use  and  enjoy,  just  as  the  air  above  its  surface  was 
and  still  is  free  to  all  for  breathing,  ballooning,  and  all 
other  purposes  for  which  air  can  be  used.  The  spontaneous 
fruits  of  the  earth,  and  the  manifold  powers  of  the  earth, 
had  indeed  for  the  first  men  a  great  utility ,  but  from  the 
nature  of  things  could  have  had  no  value  at  all.  Nor  was 
there  any  provision  or  occasion  at  first  for  particular  owner¬ 
ship  of  separate  parcels  of  the  land  itself.  The  idea  of  value 
could  not  have  attached  to  any  portion  of  land  on  which 
no  human  efforts  had  been  expended :  no  man  would  have 
thought  to  say  to  another  under  such  circumstances,  “this 
field  is  mine,  and  if  you  will  give  me  something  for  it,  you 
shall  have  it ;  ”  and  even  if  he  had  thought  of  it,  that  other 
would  not  give  it,  because  such  fields  were  open  on  every 
hand  gratis.  It  is  not  in  human  nature  to  render  any  thing 
for  something  which  may  be  gratuitously  obtained ;  and 
therefore  value  can  have  no  place  in  a  sphere  where  every 
thing  is  free.  All  the  portions  of  the  earth’s  surface,  and 
all  the  parts  of  a  vast  system  of  natural  agents  connected 
with  it,  were,  in  the  early  ages  of  its  occupation,  as  common 
and  free  to  all  men  as  most  of  the  natural  agents  have  con¬ 
tinued  to  be  till  this  day. 

2.  If  we  may  trust  the  simple  record  in  Genesis,  the  whole 
earth  was  given  of  God  without  partiality  to  a  whole  race 
under  the  simple  direction  that  they  “replenish  and  subdue 
it.”  Under  the  word  “  subdue ,”  and  under  the  human  ser¬ 
vices  implied  in  that,  came  in  the  first  idea  of  ownership  in 


LAND. 


277 


laud.  When  a  family  commenced  this  work  of  subjugation 
upon  a  piece  of  land,  when  they  enclosed  it,  settled  on  it, 
tilled  it,  in  any  wray  whatever  improved  it  by  an  expenditure 
of  their  own  toil,  then  first  dawned  upon  their  minds  the  idea 
of  possession,  then  first  began  the  land  to  be  possessed  of 
value ,  since  now  the  family  would  justly  say  to  another,  If 
you  want  this  field,  you  must  give  us  an  equivalent  for  what 
we  have  expended  on  it.  If  the  transfer  took  place,  is  it 
not  very  plain  that  what  was  sold,  was  not  so  much  the 
inherent  qualities  of  the  soil  as  the  result  of  the  efforts  ex¬ 
pended  in  its  amelioration?  The  qualities  of  the  soil  lay 
indeed  at  the  foundation  of  the  utility  of  the  parcel ;  that 
utility,  however,  had  been  increased  by  the  efforts  of  men ; 
and  the  value  of  the  parcel,  the  equivalent  rendered  in  return 
for  it,  would  be  gauged,  in  general,  by  this  second  factor  in 
the  utility.  The  first  family  received  the  soil  and  its  powers 
gratuitously,  and  then  expended  a  series  of  efforts  on  its 
improvement ;  but  a  similar  series  of  efforts  bestowed  on 
other  gratuitous  land  in  the  neighborhood  would  make  it  as 
eligible  as  this  now  is  ;  if,  therefore,  the  family  insisted  on 
more  than  an  equivalent  for  their  exertions  actually  bestowed 
on  the  land,  the  other  would  reply,  For  as  much  labor  as 
you  have  given  to  your  land,  we  can  make  other  free  land 
as  good  as  yours,  consequently  wre  can  give  you  no  more 
than  a  fair  equivalent  for  your  efforts.  The  value  there¬ 
fore  of  the  parcel  sold,  would  be  determined,  not  by  the 
gratuitous  elements  involved,  but  by  the  onerous  elements 
involved,  that  is  to  say,  by  the  efforts  already  made  by  the 
first  family  in  connection  with  the  land,  as  compared  wbth 
the  efforts  of  the  second  involved  in  the  remuneration  offered. 
The  physical  thing,  land,  which  cost  nothing,  has  now  be¬ 
come  the  valuable  thing,  land,  solely  in  consequence  of 
human  efforts  expended,  by  which  a  new  utility  has  been 
added  to  the  original  utility,  whatever  that  was  ;  and  that 
which  the  buyer  pays  for  is  not  the  free  old  but  the  onerous 
new ,  and  nobody  is  harmed  thereby,  and  no  bounty  of 


278 


POLITICAL  ECONOMY. 


God  is  thereby  intercepted  in  its  descent  to  mankind  as  a 
whole. 

Indeed,  it  does  not  seem  to  be  possible  in  the  nature  of 
things  that  God’s  bounty  to  the  whole  race  should  be  thwarted 
b}r  any  number  of  individuals  through  exclusive  appropria¬ 
tion  on  their  part  of  this  bounty.  What  they  received  gra¬ 
tuitously,  they  must  gratuitously  transmit ;  what  they  have 
wrought  of  permanent  improvements  on  the  land,  they  may 
justly  demand  a  recompense  for,  and  can  secure  it.  By 
their  expenditure  of  efforts  they  have  saved  to  the  purchaser 
a  like  expenditure  of  efforts,  and  for  these  they  can  demand, 
and  he  will  be  willing  to  concede,  a  recompense  ;  but  if  they 
go  further,  and  demand  pay  for  the  natural  qualities  of  the 
soil  which  God  gave  and  they  have  not  improved,  for  the 
sun  that  shines,  and  the  rain  that  falls  on  it,  the  demand  is 
blocked  at  once  by  the  common  sense  of  the  purchaser.  He 
replies  :  There  is  land  enough  in  its  natural  state,  with  inher¬ 
ent  qualities  as  good  as  yours,  the  same  sun  shining  on  it, 
and  just  as  much  blessed  rain  falling  on  it,  which  I  can  have 
for  nothing.  I  cannot  give  you  something  for  that  which 
costs  you  nothing,  and  which  I  can  get  for  nothing. 

As  long  as  there  is  abundance  of  land  still  open  to  occu¬ 
pation,  eve^body  will  concede  that  this  line  of  argument  is 
just,  and  that  the  general  value  of  land  cannot  rise  above 
the  estimated  measure  of  the  human  efforts  actually  bestowed 
on  its  improvement.  Though  less  obvious  at  first,  the  prin¬ 
ciple  still  holds  true  after  all  the  land  has  been  taken  up. 
Improved  farms  are  alwa3Ts  for  sale  in  every  country,  lands 
once  appropriated  and  ameliorated  are  perpetually  changing 
hands,  and  some  men  are  always  found  willing  to  part  with 
land,  as  with  any  thing  else,  for  what  it  has  cost  them.  If 
some  proprietors  try  to  exact  a  price  for  their  land  made  up 
of  compensation  for  what  they  and  their  predecessors  have 
done  upon  it,  and  for  what  they  or  others  have  done  in  some 
proximity  to  or  connection  with  it,  together  with  something 
added  for  what  God  has  done  for  it,  their  cupidity  is  usually 


LAND. 


279 


thwarted  by  the  readiness  of  others  to  dispose  of  their  land 
for  a  fair  equivalent  of  their  own  or  others’  onerous  exer¬ 
tions.  Human  motives  are  such,  and  every  thing  is  so  provi¬ 
dentially  arranged,  that  men  cannot,  as  a  rule,  sell  God’s 
gifts ;  it  would  be  derogatory  to  the  Giver,  if  they  could. 

3.  What  might  be  thus  inferred  from  the  nature  of  the 
case,  is  abundantly  confirmed  by  facts.  As  a  matter  of  fact 
and  experience,  lands  are  absolutely  valueless  until  some 
portion  of  human  effort  has  been  expended  on  them,  or  in 
reference  to  them.  They  may  have  utility,  but  they  have 
no  value.  Nobody  will  give  any  thing  for  them.  The  United- 
States  Government  has  been  selling  for  years  some  of  the 
best  lands  in  the  world  for  one  dollar  and  a  quarter  an  acre, 
and  this  after  the  lands  have  been  surveyed  at  government 
expense,  local  governments  provided  for  the  settlers,  and 
mail  facilities  and  other  privileges  guaranteed  to  them.  The 
same  government  is  now  giving  away  similar  lands  in  home¬ 
steads  to  actual  settlers,  merely  taking  for  the  the  title-deeds 
nominal  fees,  whose  aggregate  amount  does  not  begin  to 
meet  the  expenses  incurred  in  connection  with  these  lands. 
If  lands  had  value,  independent  of  human  exertions,  then 
would  the  English  companies  and  individuals  who  received 
grants  in  the  17th  century  of  vast  tracts  of  as  fertile  land 
on  this  continent  as  the  sun  ever  visited  in  his  diurnal  revo¬ 
lutions,  have  become  rich  as  Croesus ;  but  these  companies 
and  individuals  did  not  become  rich  at  all,  but  rather  poor. 
The  amount  realized  from  the  sale  of  their  lands  fell  far 
short  of  re-imbursing  the  expenses  of  colonization ;  and, 
after  incurring  debts  and  endless  vexations,  most  of  the 
companies  and  proprietors  were  glad  to  be  rid  of  their  lands 
at  any  price.  It  is  a  current  proverb  now  in  regard  to  wild 
lands  at  the  West,  that  the  more  a  man  has  of  them  the 
worse  off  he  is ;  and  it  is  a  maxim  also  in  the  newer  settle¬ 
ments  everywhere,  that  improved  lands  are  worth  the  present 
value  of  the  improvements  and  no  more.  Mr.  Carey  is  at 
pains  to  prove,  what  might  be  expected  beforehand,  that  the 


280 


POLITICAL  ECONOMY. 


value  of  lands  in  old  countries  is  now  less  than  they  have 
cost  of  actual  human  efforts  in  their  subjugation  and  im¬ 
provement.  The  progress  of  capital  and  inventions  enables 
similar  work  to  be  done  now  at  greater  advantage,  and  con¬ 
sequently  the  results  of  former  work  have  fallen  in  value. 
While,  therefore,  value  in  land  arises  solely  in  connection 
with  human  efforts  of  some  sort  standing  in  some  relation  to 
that  land,  it  is  important  to  observe  that  the  value  is  not 
always  proportioned  to  those  efforts.  The  efforts  may  have 
been  misdirected  ;  the  desires  calculated  upon  may  have  taken 
another  turn  ;  the  utility  sought  to  be  conferred  may  not  find 
the  requisite  natural  utility  underneath ;  and  so,  there  is  a 
greater  diversity  in  the  value  of  lands  than  in  the  amount 
of  efforts  expended  upon  them. 

4.  It  follows  from  these  points  made,  that,  under  our  divis¬ 
ion  of  Values,  salable  land  is  a  Commodity ,  just  as  a  horse 
is,  or  as  a  steam-engine  is.  Men  did  not  originally  make 
the  land,  neither  do  men  make  horses,  nor  do  men  make  the 
iron  ore,  out  of  which  most  parts  of  the  steam-engine  are 
made  ;  but  men  modify  the  land  as  God  made  it,  come  into 
possession  of  it  in  some  way,  gain  for  themselves  a  right  to 
sell  it,  and  prepare  it  to  be  sold,  just  as  men  break  and  train 
horses  and  prepare  them  to  be  sold,  and  just  as  men  by 
many  processes  transform  the  iron  ore  into  the  steam-engine. 
Ricardo 1  says  that  4 4  rent  is  that  portion  of  the  produce  of  the 
earth,  which  is  paid  to  the  landlord  for  the  use  of  the  origi¬ 
nal  and  indestructible  powers  of  the  soil.”  As  a  matter  of 
fact,  and  as  we  shall  see,  there  are  no  such  powers ;  and  even 
if  there  were,  it  would  be  impossible  to  separate  the  portion 
paid  44  for  the  use  of  the  original  and  indestructible  powers 
of  the  soil”  from  the  portion  paid  as  interest  on  the  capital 
expended  to  bring  that  land  from  the  state  of  nature  to  its 
present  state.  There  is  scarcely  any  land  anywhere  fit  for 
cultivation  without  more  or  less  expenditure  of  labor  and 
capital  upon  it;  and  the  “powers”  of  the  earth,  instead  of 

1  Principles  of  Political  Economy  and  Taxation,  p.  47,  2d  ed.,  1819. 


LAND . 


281 


being  “  indestructible,”  are  in  a  constant  process  of  wearing 
out,  and  require  a  constant  application  of  labor  and  capital 
to  keep  up  their  fertility.  Besides,  who  is  authorized  to  take 
pay  “  for  the  use  of  the  original  and  indestructible  powers  of 
the  soil  ”  ?  And  who  can  put  himself  into  a  position  where  he 
can  enforce  such  a  claim?  Land  accordingly,  like  all  other 
commodities,  and  like  all  other  valuable  services,  derives  its 
utility  partly  from  the  free  contribution  of  Nature,  and  partly 
from  the  onerous  contribution  of  men;  and,  as  we  saw  in 
general  in  the  chapter  on  “Value,”  the  value  of  land ,  as  of 
all  otliei  services,  tends  perpetually  to  become  proportionate 
to  the  onerous  human  contributions,  and  not  to  the  aggregate 
utility.  There  are  unique  cases  in  lands,  as  in  other  things, 
in  which  the  action  of  competition  may  not  expel  the  common 
factor,  —  nature’s  contribution,  — from  all  influence  on  price  ; 
but  these  cases  are  of  no  more  importance  in  lands  than  in 
horses,  or  other  things,  and  themselves  come  completely  under 
the  law  of  Supply  and  Demand.  Our  generalization,  there¬ 
fore,  in  regard  to  Commodities,  is  not  at  fault  when  it  touches 
upon  land.  Land  comes  under  it  easily  and  perfectly. 

5.  Moreover,  all  our  other  definitions  and  principles  will 
now  be  seen  to  include  without  violence  the  facts  of  land. 
Desires  first  and  then  efforts,  —  the  utility  to  each  party  of 
the  respective  services,  and  then  the  equivalents  rendered  by 
each,  —  these  are  always  the  elements  out  of  which  the  value 
of  land,  the  value  of  its  products,  the  amount  of  its  rent, 
must  and  do  spring ;  otherwise,  our  science  would  lack  the 
generality  which  alone  can  constitute  it  a  science.  What¬ 
ever  makes  land  more  an  object  of  desire  than  it  was  before, 
whether  increased  fertility  or  a  location  now  become  more 
advantageous,  will,  so  far  forth,  increase  its  value ;  and 
whatever  makes  the  equivalent  offered  for  it  more  an  object 
of  desire  to  the  holder  of  the  land,  will,  so  far  forth,  dimin¬ 
ish  its  value ;  while  the  reversed  conditions  in  each  case  will 
give  of  course  reversed  results.  Lands  in  cities,  or  in  the 
neighborhood  of  them  ;  lands  of  unusual  fertility,  or  pos- 


282 


POLITICAL  ECONOMY. 


sessing  superior  building  sites  ;  lands  containing  rich  mines 
or  a  remarkable  water-power  ;  sometimes  excite  extraordinary 
desires  to  possess  them,  and  bear  in  consequence  an  extra¬ 
ordinary  price.  Still  the  efforts,  care,  and  abstinence  of  their 
owners,  or  of  others,  have  made  up  an  essential  part  of  their 
present  utility.  They  are  assimilated  in  the  law  of  their  value 
to  other  unique  products.  Of  such  lands  no  market  rate  can 
be  predicated,  because  competition  has  no  play.  Their  util¬ 
ity,  like  every  other  utility  that  underlies  value,  is  partly  the 
contribution  of  nature  and  partly  the  contribution  of  man, 
but  competition  in  this  case  has  not  its  usual  opportunity  to 
eliminate  from  its  action  on  price  that  portion  of  the  utility 
that  is  the  free  gift  of  nature.  Their  price,  consequently, 
is  only  gauged  by  the  service  which  the  owner  can  render 
the  purchaser  by  them.  With  these  unimportant  exceptions, 
which  themselves  come  with  precision  under  our  fundamental 
principles,  the  value  of  land  follows  the  law  of  other  values, 
arises  only  in  connection  with  human  efforts,  is  open  to  free 
competition,  is  not  affected  by  the  utility  that  comes  from 
nature,  rests  back  upon  the  right  of  making  efforts  for  one’s 
own  welfare,  and  of  not  parting  with  the  result  except  for 
an  equivalent,  is  a  clear  case  of  service  for  service,  and 
varies  like  other  values  under  the  law  of  demand  and  supply. 

6.  It  is  worthy  of  remark  at  this  point  that  the  element  of 
profits  frequently  finds  place  in  the  price  of  lands.  Land 
may  be  purchased  and  held  a  long  time  with  a  view  to  ulti¬ 
mate  profits.  Little  may  have  been  done  for  the  land  origi¬ 
nally,  and  little  in  the  mean  time,  and  yet  the  ultimate  price 
be  large,  because  the  purchase-money  should  be  replaced  with 
compound  interest.  Abstinence ,  therefore,  which  is  one  form 
of  effort,  has  often  to  do  with  the  value  of  lands.  Also,  the 
efforts  of  certain  men  put  forth  exclusively  towards  ends  of 
their  own,  as  in  locating  a  railroad  or  a  manufactory,  may 
benefit  the  lands  of  other  men  as  much  as  efforts  put  forth 
with  that  direct  intent.  These  lands  become  thereby  more 
desi  'able  and  therefore  more  valuable. 


LAND. 


283 


7.  This  brings  us  to  the  very  important  proposition,  that 
by  much  the  largest  part  of  all  salable  land  is  nothing  more 
or  less  than  Capital.  Capital  is  some  product  reserved  as  a 
means  to  further  production ;  and  valuable  land  is  always 
a  product  of  labor  and  previous  capital,  and  is  generally 
reserved  for  use  iu  future  production,  and  so  is  capital  under 
the  definition.  The  moment  it  is  recognized  as  such,  the 
difficulties  that  have  perplexed  economists  and  statesmen, 
for  example,  Mr.  George  in  his  labored  discussions  of  land, 
and  Mr.  Gladstone  in  his  passing  of  the  Irish  Land  Bill  of 
1881,  mostly,  if  not  wholly,  disappear.  Of  course,  land  is 
capital  only  so  far  as  it  is  a  product;  and  here  comes  in  again 
the  distinction  with  which  we  started,  namely,  that  between 
land  as  a  physical  thing  and  land  as  a  valuable  thing.  Not 
all  land  is  valuable,  though  all  land  is  land:  value  is  often 
superinduced  by  labor  and  capital  on  worthless  land,  and 
thereafter  the  two  become  one  in  men’s  minds,  and  work 
'confusion  there.  But  there  is  nothing  unusual  in  the  trans¬ 
formation  of  a  worthless  thing  into  a  valuable  thing  by  the 
action  of  labor  and  capital,  and  the  two  thereafter  becoming 
undistinguishable :  a  cherry  log,  perhaps  now  worthless  in 
the  mountain  pasture,  wnen  transported  by  labor  and  capital 
to  the  cabinet-shop,  and  transformed  by  the  same  means  into 
a  set  of  furniture,  may  become  very  valuable,  — the  valueless 
physical  wood  taking  on  that  (now  inseparable  from  itself) 
which  makes  the  two  salable.  But  it  must  always  be  remem¬ 
bered,  that  value  goes  as  well  as  comes,  and  that  things  once 
salable  often  become  later  valueless. 

So  too,  not  all  valuable  land  is  capital,  but  only  that  large 
portion  of  it  that  is  worked  or  leased  or  held  with  a  view  to 
an  ultimate  profit.  A  competent  authority  estimated  iu  1881 
that  the  land  of  the  United  Kingdom  of  Great  Britain  was 
worth  £3,000,000,000  ;  and  there  were  at  the  same  time 
6,000,000  inhabited  houses,  excluding  factories  and  business 
premises  and  tenements  renting  for  £20  and  under.  There 
were  4,008,907  farms  in  the  United  States  in  the  year  1880. 


284 


POLITICAL  ECONOMY. 


The  actual  number  of  acres  taxed  iu  1880  in  the  small  and 
sterile  State  of  Massachusetts  was  4,474,674  ;  from  which, 
if  we  deduct  100,000  acres  for  house-lots  in  city  and  village, 
the  farm  acreage  remaining  will  be  about  4,375,000,  an  aver¬ 
age  of  nearty  44,000  farms  of  100  acres  each.  Now  it  is 
easy  to  see,  in  general,  what  part  of  these  lands,  as  also 
what  part  of  these  buildings,  is  capital :  the  factories  and 
business  premises  of  course  are  capital ;  the  lands  and  the 
buildings  on  them  that  are  rented  out  are  capital ;  the  farms 
cultivated  by  their  owners  or  leased  to  tenants  are  capital ; 
while  private  houses  occupied  by  their  owners,  and  lands 
kept  for  mere  beauty  or  convenience,  are  not  capital.  That 
portion  of  the  land  that  is  capital,  then,  must  of  course  pos¬ 
sess  all  the  characteristics  of  capital ;  and,  among  these,  is 
the  liability  to  ivear  out.  As  value  comes  only  gradually  into 
land  under  the  action  of  human  efforts  and-  desires,  and  as 
valuable  land  becomes  capital  only  under  the  further  action  of 
these  and  of  abstinence,  so  lands  often  cease  to  be  capital 
and  even  to  be  valuable  as  these  causes  intermit  their  action 
in  relation  to  them.  There  are  whole  tiers  of  farms  in  the 
writer’s  native  town  in  New  Hampshire,  that  were  once 
valuable  and  capital  in  the  hands  of  active  owners  and  cul¬ 
tivators,  which  are  now  growing  up  to  forest  again,  and  are 
as  nearly  as  possible  valueless.  This  is  a  mere  instance  of 
facts,  which  may  probably  be  exemplified  in  every  country 
in  the  world ;  and  is  such  as  ought  to  stop  the  mouths  of 
those,  who,  like  Mr.  George  and  the  Irish  land-leaguers  of 
1881,  denounce  private  ownership  in  land  as  spoliation,  and 
would  confiscate  rent  either  for  the  benefit  of  the  whole  com- 
munitv  or  of  the  actual  tillers  of  the  soil.  The  truth  is,  the 
common  sense  of  mankind  seals  such  ownership,  that  is  to 
say,  grants  a  full  title  to  the  land  to  those  who  have  subdued 
or  improved  it,  and  to  their  heirs  or  purchasers,  except  when 
tribal  or  political  considerations  override  this  by  some  neces¬ 
sity  that  then  and  there  seems  more  imperative.  “Since  the 
beginning  of  documentary  history,  the  Germans  have  had 


LAND. 


285 


individual  property  in  land  and  a  settled  law  of  succession,” 
says  Dr.  Inama-Sternegg  of  Prague.  The  right  to  own  -and 
to  enjoy  carries  along  with  it  the  right  to  sell  and  to  abandon  ; 
and  even  the  abandonment  of  lands  proves  that  they  become 
valuable  and  become  capital,  and  then  sometimes  cease  to  be 
both,  in  the  manner  already  indicated.  Under  certain  well- 
known  conditions,  value  disappears,  and  capital  wears  out. 

8.  If  the  bulk  of  land  be  capital,  as  it  is,  then  we  might 
expect  beforehand  to  find  a  law  of  diminishing  return  from 
land,  agricultural  labor  and  skill  remaining  the  same ;  be¬ 
cause  all  capital  is  tools,  and  tools  are  always  wearing  out. 
Increase  of  labor  in  connection  with  any  form  of  capital 
unimproved  by  new  inventions  and  uninvigorated  by  fresh 
skill,  though  it  may  indeed  increase  the  aggregate  return, 
cannot,  for  the  reason  just  given,  secure  an  increase  propor¬ 
tioned  to  the  increase  of  the  labor.  Tilled  land,  therefore, 
is  subject  to  the  law  of  a  diminishing  return  of  “  produce,” 
by  which  we  mean  all  the  fruits  of  the  earth  cultivated  foi 
the  sake  of  their  sale.  This  is  the  fundamental  proposition 
on  which  Ricardo,  and  the  English  writers  generally,  lay  such 
stress,  and  on  which  they  found  their  law  of  Rent,  and  the 
necessity  of  restraints  on  Population  ;  while  Carey  and  Bas- 
tiat,  impliedly  if  not  expressly,  deny  the  proposition,  and 
of  course  the  inferences  deduced  from  it.  But  the  proposi¬ 
tion  cannot  be  logically  denied,  because  it  can  be  shown  to 
be  a  law  of  Nature,  and  to  have  played  a  very  important 
part  in  the  occupation  and  culture  of  successive  portions  of 
the  earth’s  surface.  The  English  writers  have  not  indeed 
taken  land  to  be  capital,  and  have  proved  the  law  of  dimin¬ 
ishing  return  in  another  way  from  ours,  and  hence  have 
not  set  the  propositions  of  land  in  their  best  and  most  ulti¬ 
mate  relations.  Their  method  of  proving  the  law  is  short 
and  conclusive :  —  If  by  doubling  the  labor  on  a  piece  of 
land,  double  the  produce  could  be  secured,  and  by  quadru¬ 
pling  it,  quadruple,  and  so  on,  there  would  be  no  reason 
why  any  man  should  ever  cultivate  more  than  a  square  acre, 


286 


POLITICAL  ECONOMY. 


or  even  a  square  rod.  He  has  a  strong  motive  to  confine 
his  culture  to  a  small  space,  just  so  long  as  the  amount  of 
produce  is  in  the  ratio  of  the  labor  expended,  because  there 
is  less  locomotion  of  tools  and  fertilizers  and  crops.  The 
fact  that  he  extends  his  culture  from  one  acre  to  another, 
and  then  to  distant  acres,  notwithstanding  the  inconven¬ 
iences  and  expense  of  transportation,  is  an  irrefragable  proof 
of  the  proposition  in  question.  Increase  of  agricultural 
labor  and  expenditure  on  a  given  space  of  land  will  secure 
a  larger  amount  of  produce,  but  as  a  general  law,  the  in¬ 
creased  amount  will  not  be  proportioned  to  the  increased 
expenditure.  If  it  were  thus  proportioned,  if  the  law  of 
diminishing  return  did  not  exist,  then,  for  purposes  of  agri¬ 
cultural  production,  a  square  acre  is  as  good  as  a  continent. 

It  is  through  this  law  of  diminishing  return,  that  the 
Creator  has  secured  the  gradual  occupation,  by  men,  of  almost 
the  whole  earth.  There  is  a  strong  tendency  to  leave  the 
old  acres  to  advance  upon  new,  the  old  countries  to  emigrate 
to  new,  whenever  the  returns  begin  to  bear  a  more  unfavora¬ 
ble  ratio  to  the  labor  bestowed.  The  farmer  will  advance 
from  the  first  to  the  second  acre  as  soon  as  he  thinks  that 
more  produce  can  be  obtained  from  it  by  a  given  amount 
of  labor  than  can  be  got  by  a  like  expenditure  of  additional 
labor  upon  the  first  acre,  allowance  being  made  for  the 
increased  inconvenience ;  and  so,  cultivation  has  gradually 
extended  itself,  and  men  have  become  dispersed  over  the 
whole  earth.  Other  principles  leading  to  dispersion  have 
undoubtedly  co-operated,  but  this  is  the  fundamental  one, 
operative  at  all  times,  changing  the  course  of  population, 
and  consequently  of  empire. 

Mr.  Carey  tried  to  break  down  the  law  of  diminishing 
returns,  which  he  thought  was  dependent  on  an  alleged  order 
of  occupation,  namely,  that  the  best  soils  are  entered  upon 
first,  and  afterwards  recourse  is  had  to  the  poorer  soils,  bj7 
attempting  to  prove  the  reverse  order  of  occupation,  namely, 
that  cultivation  has  always  been  begun  upon  the  poorer 


LA  ND. 


287 


Boils,  and  that  afterwards  the  river  bottoms  and  strong  lands 
have  been  drained  and  cleared  and  tilled.  This  discussion 
of  the  order  of  the  occupation  of  lands,  however  interesting 
in  itself,  is  irrelevant  so  far  as  the  law  of  diminishing  returns 
is  concerned,  because  that  law  is  nowise  dependent  on  the 
order  in  which  soils  of  different  productive  power  are  entered 
upon  in  cultivation ;  and  consequently,  Mr.  Carey  put  upon 
this  order  of  occupation  an  estimation  altogether  clispropor* 
tioned  to  its  importance.  Whenever  men  have  entered  upon 
new  countries,  they  have  undoubtedly  selected  those  lands 
first  which  seemed  to  them  most  eligible,  reference  being 
had  of  course  to  their  present  means  of  subduing  them ; 
and  whether  these  lands  proved  ultimately  to  be  better  or 
worse  than  other  parcels  which  they  might  have  chosen,  is  a 
point,  which,  however  determined,  has  no  effect  to  disturb 
the  fundamental  proposition  in  hand. 

Nor  is  there  any  thing  to  disturb  this  proposition  in  the 
enormously  increased  produce  of  late  years  in  the  United 
States,  and  in  other  countries  similarly  situated.  For  in¬ 
stance,  in  the  cotton  year  ending  Sept.  1,  1881,  the  United 
States  produced  6,589,329  bales  of  raw  cotton,  while  in 
1850  and  in  1870  respectively  the  crop  was  2,469,093  and 
3,011,996  bales;  in  the  census  year  1880,  there  was  of 
wheat  459,479,505  bushels,  while  in  1870  there  was  only 
287,745,626  bushels  ;  and  of  Indian  corn  in  1880,  there  was 
1,754,861,535  bushels,  while  in  1870  there  was  but  760,- 
944,549  bushels.  This  great  increase  came  for  the  most 
part  from  new  acreage,  and  not  from  a  larger  produce  on  old 
fields.  The  United  States  has  an  immense  area  of  fertile 
land,  long  stretches  of  which  are  feeling  the  plough  for  the 
first  time  year  by  year. 

9.  All  improvements  in  agriculture  retard  the  operation  of 
the  law  of  diminishing  returns.  The  recent  introduction  of 
the  silo  upon  the  long-used  and  wearing-out  farms  of  New 
England  promises  to  help  restore  the  fertility  of  many  of 
them.  The  discovery  of  new  and  more  available  fertilizers, 


288 


POLITICAL  ECONOMY. 


tne  invention  of  better  agricultural  implements,  the  light 
thrown  by  chemistry  upon  agriculture,  the  consequent  adop¬ 
tion  of  better  methods  of  culture  and  rotation  of  crops,  the 
more  perfect  adaptation  to  the  various  soils  of  the  kinds  of 
produce  sought  to  be  raised  from  them,  all  these  and  similar 
improvements  tend  to  increase  the  ratio  of  the  produce  to 
the  labor,  and  disguise  the  law  just  established.  The  lands 
that  are  now  under  cultivation  may  be  made,  under  more 
skilful  modes  of  culture,  to  yield  indefinitely  more  than  at 
present,  and  the  vast  still  uncultivated  lands  of  the  world 
may  come  to  render  an  incalculable  quantity  of  food  to  the 
world’s  population  ;  but  yet,  as  improvements  are  naturally 
less  continuous  in  this  than  in  some  other  departments  of 
production,  as  invention  has  less  play,  as  there  is  less  oppor- 
tunity  for  the  division  and  co-operation  of  labor,  as  nothing 
can  materially  shorten  the  time  during  which  the  fruits  of 
the  earth  must  ripen,  it  is  certain  that  possible  improve¬ 
ments  will  never  override  the  law  of  diminishing  returns ; 
and,  consequently,  that  the  value  of  agricultural  products 
tends  to  rise  relatively  to  manufactured  products  generally. 
Labor,  for  a  reason  already  given,  and  produce,  for  the  rea¬ 
sons  now  given,  have  risen  and  tend  steadily  to  rise,  as 
estimated  in  general  commodities. 

10.  The  rent  of  leased  lands  is  the  measure  of  the  service 
which  the  owner  of  the  land  thereby  renders  to  the  actual  cul¬ 
tivator  of  it.  This  proposition  is  extremely  important.  As 
land  is  capital,  and  as  every  form  of  capital  may  be  loaned 
or  rented,  and  thus  become  fruitful  in  the  hands  of  another, 
as  was  shown  in  the  preceding  chapter,  the  rent  of  land  does 
not  differ  essentially  in  its  nature  from  the  rent  of  buildings 
in  cities,  or  from  the  interest  of  money.  The  year  1881 
was  marked  by  animated  discussions  throughout  the  civilized 
world,  and  particularly  throughout  the  English-speaking 
world,  on  the  nature  and  rightfulness  of  landed  rents,  stimu¬ 
lated  by  the  deep  commotions  of  Ireland  and  by  the  de¬ 
bates  in  the  British  Parliament  on  the  Irish  Land  Bill  passed 


LAND. 


289 


in  that  year.  In  those  debates,  the  representatives  of  Irish 
land-owners  held  to  their  commercial  right  to  take  all  the 
rent  they  could  extort ;  the  representatives  of  the  Irish  rent- 
payers  held  to  their  right  as  cultivators  and  maintainers  to 
withhold  rent  in  large  part  or  altogether;  and  Mr.  Glad¬ 
stone,  as  representative  of  the  nation,  while  insisting  on 
the  right  of  the  owners  to  certain  rents,  insisted  equally  on 
the  right  of  the  cultivators  to  certain  important  privileges 
in  the  soil.  Our  present  proposition  with  its  corollaries, 
although  it  was  not  used  by  Mr.  Gladstone  as  it  might  well 
have  been  to  smooth  his  pathway  through  the  roughness  of 
this  legislation,  yet  justifies  at  one  and  the  same  time  the 
discontent  of  the  Irish  rent-payer,  the  claim  of  the  Irish 
land-owner  to  an  assured  rent,  and  the  fundamental  principle 
of  the  Irish  Land  Bill.  That  bill  gives  a  certain  modified 
ownership  and  control  to  the  actual  cultivators  and  main¬ 
tainers  of  the  soil.  That  is  right. 

The  commonly  accepted  English  principles  of  land  are 
wholly  against  Mr.  Gladstone  in  his  concessions  to  the  ten¬ 
ants  in  that  bill,  while  the  principles  of  land  herewith  enun¬ 
ciated  justify  those  concessions  completely.  Valuable  land 
becomes  such  in  virtue  of  human  labor  expended  in  connec¬ 
tion  with  the  desires  of  other  men  for  land  or  its  produce, 
and,  unless  human  labor  is  further  and  constantly  expended 
on  or  in  connection  with  that  land,  the  value  will  certainly 
escape  fro;n  it;  therefore,  whoever  has  come  into  possession 
of  that  valuable  land  by  purchase  or  inheritance,  and  fore¬ 
goes  the  use  of  it  in  favor  of  another,  is  morally  and  com¬ 
mercially  entitled  to  the  stipulated  return  for  that  use  ;  but 
also,  if  that  other,  aside  from  the  current  use  which  is 
always  a  wearing-out  process,  contributes  in  any  way  to  the 
continuance  and  increase  of  the  fertility  of  the  land,  then 
and  so  far  he  gains  rights  in  the  land  and  becomes  a  sort 
of  joint  owner  of  it,  since  what  he  has  done  in  the  way  of 
maintenance  and  improvement  is  inextricably  mingled  with 
what  the  other  owners  have  done,  and  is  of  the  same  nature 


290 


POLITICAL  ECONOMY. 


with  that.  Therefore,  the  modified  ownership  of  certain 
tenants  recognized  in  Gladstone’s  bill  is  in  strict  accordance 
with  ultimate  justice.  It  is  also  in  strict  accordance  with 
right,  that  the  legal  owner  should  continue  to  receive  a 
return  in  the  shape  of  rent  for  all  the  fertility  and  oppor¬ 
tunity  actually  rented  by  him,  and  no  more.  The  discon¬ 
tent  of  the  Irish  peasantry,  accordingly,  has  largely  come 
from  an  instinct  or  intelligence  more  unerring  than  the  eco¬ 
nomics  of  the  landowners,  namely,  that  they  are  called  on 
to  pay  rent  for  what  they  themselves  have  contributed  in 
addition  to  the  rent  for  what  they  have  received.  The  true 
origin  of  value  in  land,  and  the  only  way  in  which  value  in 
land  is  kept  up,  seems  to  have  penetrated  deeper  into  the 
minds  of  Irish  tenants  than  into  the  minds  of  many  British 
statesmen.  •» 

But  Mr.  Ricardo’s  wrong  doctrine  of  rent  is  too  famous 
and  too  firmly  embedded  in  many  men’s  minds  for  us  to  pass 
it  b}^  in  this  connection.  The  doctrine  is  for  substance,  this : 
there  are  some  lands  in  every  country  whose  produce  just 
repays  the  expenses  of  cultivation,  and  consequently  yields 
no  margin  for  rent ;  and  the  cost  of  production  on  these 
rentless  and  poorest  lands  under  cultivation,  will  determine 
the  price  of  the  produce  ;  and  as  there  can  be  but  one  price 
in  the  same  market,  the  produce  raised  on  more  fertile  lands 
will  be  sold  for  the  same  price,  and  this  price,  besides  pay¬ 
ing  the  cost  of  production,  will  yield  a  rent  rising  higher 
according  as  the  land  is  more  fertile  ;  so  that  the  rent  paid 
on  any  land  is  always  a  measure  of  the  excess  of  produc¬ 
tiveness  of  that  land  over  the  least  productive  land  under 
paying  cultivation  ;  and  therefore,  an  increased  demand  for 
food  in  consequence  of  increased  population,  and  the  higher 
price  resulting,  will  force  cultivation  down  upon  still  poorer 
soils,  or  else  compel  a  higher  culture  for  less  remunerative 
returns  on  the  old  soils,  according  to  the  law  of  diminishing 
returns,  which  in  either  case  will  raise  the  rents  on  all  the 
soils  above  that  grade  that  just  repays  the  expenses  of  cul 


LAND. 


291 


tivation  ;  so  that  it  is  the  sole  interest  of  landlords,  as  such, 
that  population  should  be  dense  and  food  high,  their  interest 
being  directly  antagonistic  to  that  of  the  other  classes  of  the 

community. 

This  ingenious  and  plausible  doctrine  is  as  full  of  falla¬ 
cies  as  an  egg  is  full  of  meat.  It  grew  up  in  a  state  of 
things  in  England  now  long  since  passed  away,  when  that 
country  was  under  infamous  corn-laws  passed  to  “  protect  ” 
the  land-owners  by  raising  the  price  of  food  through  virtual 
prohibitions  on  the  importation  of  foreign  food.  So  soon 
as  the  trade  in  corn  became  free  in  1849,  and  it  was  no 
longer  possible  to  crowd  cultivation  down  upon  unfit  soils 
by  means  of  prices  artificially  made  dear  for  the  people,  the 
Ricardo  law  of  rent  lost  most  of  its  significance,  and  the 
simple  truth  remained,  applicable  to  all  products  that  have 
a  market-rate,  that  the  rate  must  be  presupposed  to  be  suffi¬ 
cient  to  meet  the  cost  of  that  portion  produced  with  the 
greatest  difficulty,  otherwise  that  portion  would  not  have 
been  produced  at  all.  So  far  as  lands  are  taken  on  shares, 
or  on  permanent  leases,  or  so  far  as  produce  is  exchanged 
directly  against  other  commodities  and  services,  Ricardo’s 
law  has  no  direct  bearing.  It  falsely  assumes  too,  that  mere 
cost  of  production  determines  the  value  of  produce,  while 
we  have  learned  that  the  desires  of  purchasers  have  quite  as 
much  to  do  with  value  as  the  efforts  of  producers.  It  falsely 
assumes  also,  that  the  market-rate  of  produce  is  a  sort  of 
invariable  and  predeterminable  thing,  whereas,  although  there 
is  a  strong  tendency  towards  one  price  of  similar  goods  of 
the  same  grade  in  the  same  market-town  on  any  one  day, 
within  certain  limits  nothing  is  more  changeable  or  indeter¬ 
minable  beforehand  than  the  market-rate  of  produce  from 
week  to  week  or  year  to  year  even  in  one  country,  to  say 
nothing  of  the  markets  of  the  world.  Worst  of  all,  this 
law  assumes,  that  there  are  “original  and  indestructible 
powers  of  the  soil,”  and  that  “rent  is  that  portion  of  the 
produce  of  the  earth  which  is  paid  to  the  landlord  for  the 


292 


POLITICAL  ECONOMY . 


use”  of  these  powers,  and  that  the  varying  grades  of  soii 
become  such  and  continue  such  without  modification  and 
reversal  on  the  part  of  men ;  whereas,  the  truth  is,  as  we 
have  fully  seen,  that  there  are  nc  such  u  powers,”  and  that 
rent  is  not  consequently  paid  for  their  use.” 

The  following  is  believed  to  be  the  whole  truth  briefly 
expressed  in  regard  to  the  rent  of  lands.  That  portion  of 
utility  in  lands  that  is  the  free  gift  of  Nature  is  mostly  a 
common  factor  eliminated  from  value  bv  the  action  of  com- 

1/ 

petition,  as  in  the  horses  and  strawberries,  by  which  illustra¬ 
tion  was  made  in  the  chapter  on  Value.  When  not  thus 
eliminated,  that  part  of  the  utility  may  raise  the  rent  as  well 
as  the  price,  but  the  exception  in  either  case  is  practically 
unimportant,  in  both  cases  is  amenable  to  the  law  of  services 
exchanged,  and,  the  exception  aside,  the  rent  of  lands  is  a 
simple  recompense  for  the  use  of  a  productive  instrument, 
made  such  by  human  efforts.  The  owner  has  become  pro¬ 
prietor  of  all  the  results  of  the  onerous  exertions  put  forth 
upon  that  land,  or  in  any  connection  with  that  land,  and 
allows  the  lessee  the  use  of  these  results.  Because  the 
owner  practises  abstinence  in  the  lessee’s  behalf,  rent  is  sub¬ 
stantially  the  same  as  profits  ;  and  as  gross  profits  include 
the  wages  of  superintendence,  so  rent  also  partakes  of  the 
nature  of  wages,  so  far  forth  as  the  owner  still  takes  an 
active  supervision  of  his  property.  Whether  tillable  lands 
pay  any  rent  at  all,  and  the  amount  of  rent  that  they  pay, 
always  depends,  so  far  forth  as  commercial  considerations 
control,  on  the  general  or  average  or  expected  price ,  that 
is  to  say,  value ,  of  Produce.  It  is  not  diversity  of  soils, 
nor  the  law  of  diminishing  return,  that  causes  rent,  since 
these  continue  as  before  when  rent  ceases  to  be  paid ;  but 
it  is  the  price  of  produce  under  demand  and  supply,  that 
causes  rent.  If  this  price  be  high,  as  under  the  corn-laws, 
then  rents  tend  to  be  high ;  if  low,  as  under  free  trade  in 
food,  then  rents  tend  to  be  low.  The  boundless  acres  and 
fertility  of  the  western  parts  of  the  United  States  reduced  in 


LAND. 


293 


the  decade  1870-80  many  rentful  lands  in  New  England,  and 
Old  England  too,  to  or  near  the  rentless  point.  Of  course, 
whatever  makes  lands  more  desirable  for  cultivation,  such 
as  greater  proximity  to  markets,  higher  degrees  of  fertility, 
a  better  state  of  improvements,  will  influence  both  the  price 
and  the  rent  of  those  lands  ;  while  the  variations  of  demand 
and  supply  as  determining  the  price  of  produce  are  the  main 
things  to  watch  in  order  to  find  out  about  the  value  of  lands 
and  their  rent. 

11.  The  best  tenure  of  lands  is  the  fee  simple  in  the  hands 
of  the  actual  cultivators.  This  is  the  old  Teutonic  holding  ; 
but  special  circumstances  in  the  British  Islands  have  gradu¬ 
ally  changed  these  small  holdings  cultivated  by  their  owners 
into  large  estates,  the  parts  of  which  are  leased  out  at  will 
or  for  a  term  of  years  to  tenants  or  “  farmers,”  as  they  are 
called,  who,  in  turn,  being  small  capitalists,  as  the  land- 
owners  are  large  capitalists,  furnish  stock  and  hire  laborers 
and  thus  become  the  actual  cultivators,  and  even  often  sub¬ 
let  parts  of  their  own  leased  holdings  to  tenants  of  the  next 
degree.  The  word  “farmer”  as  used  in  the  United  States 
has  a  quite  different  meaning  from  the  same  word  as  used  in 
Great  Britain ;  it  means  here  a  man  cultivating  his  own 
fields  with  his  own  funds  in  his  own  way,  and  it  means 
there  a  man  cultivating  another’s  fields  with  his  own  funds 
in  a  way  and  on  terms  made  a  matter  of  contract  between 
the  two  ;  and  these  two  modes  of  culture  are  so  distinct  that 
they  are  not  likely  to  lie  alongside  of  each  other  in  the  same 
country  to  any  great  extent  for  a  very  long  time.  Since 
the  great  Revolution,  France  has  had  for  the  most  part  the 
small  holding  tilled  by  the  owner’s  hands,  instead  of  the 
great  estates  of  the  old  regime;  in  this  country  the  plough 
is  gnided  almost  exclusively  by  the  man  who  owns  the  soil ; 
while  in  Britain  the  peasant  proprietor  has  almost  wholly 
disappeared.  Each  system  has  its  advocates  and  arguments. 
The  question  at  bottom  is,  whether  capital  in  the  form  of 
tillable  land  is  more  effective  when  held  in  large  masses  and 


294 


POLITICAL  ECONOMY. 


loaned  out  to  men  with  small  capitals  in  another  form,  or 
when  held  in  small  masses  and  used  as  capital  by  the  owners 
themselves.  We  hold  that  the  latter  is  better  for  produc¬ 
tion  than  the  former,  because  when  one  owns  the  land  he 
tills,  he  takes  a  greater  interest  in  it,  it  is  his  own,  he  has  a 
constant  motive  to  improve  it,  to  make  the  production  from 
it  as  great  as  possible,  since  all  it  produces  is  his  own.  If 
men  work  from  motives,  and  if  the  energy  and  persistence 
of  the  work  be  proportioned  to  the  constancy  and  press  of 
the  motives,  then  will  ownership  most  certainly  make  the 
aggregate  of  produce  greater  than  any  other  tenure  of  land. 
Moreover,  ownership  improves  the  moral  character  of  the  cul¬ 
tivators,  because  it  tends  to  make  them  industrious,  thrifty, 
independent,  hopeful  of  the  future,  anxious  to  give  their  chil¬ 
dren  better  privileges,  as  well  as  better  lands,  than  they 
themselves  had.  It  would  seem  as  if  the  masses  of  men  are 
educated  and  developed  bjr  nothing  so  much,  at  least  by  noth¬ 
ing  more,  as  and  than  by  the  ownership  of  land,  wherever  such 
tenure  is  possible  and  easy  to  the  masses.  The  testimony  is 
abundant,  that  the  peasant  proprietor  is  a  happier  and  more 
virtuous,  as  well  as  a  more  industrious  and  productive  man, 
than  the  mere  tenant  and  the  farm-laborer ;  and  there  is 
much  testimony,  though  it  is  perhaps  less  conclusive,  that 
leased  lauds  are  inferior  in  point  of  improvements  and  pro¬ 
duction  to  the  same  lands  when  they  were  cultivated  by  their 
owners,  and  to  contiguous  or  at  least  similar  lands  still  so 
cultivated.  The  zeal  of  an  absolute  ownership  limited  in 
extent  has  been  observed  to  lead  to  remarkable  results  as 
well  in  character  as  in  lands,  transforming  after  a  while  the 
poorest  into  excellent  lands,  and  thriftless  laborers  into  fru¬ 
gal  and  enterprising  proprietors.  This  line  of  argument  is 
strengthened  by  several  features  of  the  Irish  Land  Bill  of 
1881,  and  by  a  speech  of  Gladstone’s  at  the  rent-day  dinner 
at  Ilawarden  in  1882,  to  the  effect,  that  it  was  necessary 
both  that  legal  security  be  given  for  the  unexhausted  im¬ 
provements  made  by  the  tenants ,  and  also  that  provision  be 


LAND. 


295 


made  whereby  tenants  might  cheaply  and  quickly  be  made 
land-owners. 

12.  It  is  a  point  closel}'  allied  to  the  last,  that  a  general 
division  of  lands  into  farms  approximately  equal  and  only 
moderately  large  is  most  favorable  to  the  largest  aggregate 
production.  Wherever  there  are  no  legal  obstacles  like  pri¬ 
mogeniture  and  entails,  and  owners  can  consequently  sell  a 
part  or  all  of  their  lands  whenever  it  is  their  pecuniary  inter¬ 
est  to  do  so,  the  lands  naturally  fall  into  those  hands  which 
are  most  capable  of  using  them  productively,  because  such 
persons  can  afford  to  pay  more  for  them  than  anybody  else  ; 
and  the  division  that  follows  this  impulse  of  self-interest 
and  this  freedom  of  exchange  is  likely  to  be  into  farms 
about  equal  in  extent  and  but  moderately  large.  Such  a 
division  has  taken  place  of  its  own  accord  in  New  England, 
in  the  Middle  States,  and  for  the  most  part  at  the  Wes-t 
also ;  while  at  the  South,  the  institution  of  slavery  led  U 
the  system  of  large  plantations  and  few  land-owners,  whic» 
system  is  now  under  the  auspices  of  freedom  gradually 
giving  way  to  the  better  system  of  small  farms  and  numer¬ 
ous  proprietors.  Aristotle  quotes  from  “the  African,” 
probably  some  Carthaginian  writer  on  agriculture,  the  sa}T- 
ing,  “  the  best  manure  for  the  land  is  the  foot  of  the  owner.” 
This  homety  word,  which  has  been  often  attributed  to  Dr. 
Franklin,  and  which  is  as  true  as  if  its  origin  did  not  date 
back  some  centuries  before  Christ,  is  based  on  the  ground, 
that  personal  supervision,  to  be  most  effective,  must  be  lim¬ 
ited  in  its  sphere,  and  that  the  best  agricultural  knowledge 
and  skill  becomes  weak  when  it  attempts  to  exhibit  itself  on 
too  broad  a  surface.  Because  a  man  can  cultivate  100 
acres  better  than  any  of  his  neighbors,  it  does  not  prove 
that  he  will  cultivate  50  acres  additional  to  them  better  than 
a  neighbor  of  inferior  skill,  who  is  the  owner  of  those  50, 
and  no  more.  When  the  freeholds  are  small  and  nearly 
equal,  a  wide  competition  among  the  farmers  comes  naturally 
into  play,  success  is  seen  to  depend  upon  personal  efforts  of 


# 


296 


POLITICAL  ECONOMY. 


intelligence  and  will,  and  interest  and  hope  become  the  mo¬ 
tives  to  the  most  productive  cultivation.  There  is  a  high 
pleasure  in  possession  and  in  self-guided  exertion,  and  an 
Impulse  is  broadly  felt  over  the  whole  region  to  get  as  much 
as  possible  out  of  the  land  and  at  the  same  time  to  keep 
good  and  ever  improve  its  condition.  To  protect  and  ad¬ 
vance  his  own  interests,  to  attend  upon  the  seasons,  to  wat(  h 
and  v  ait,  to  foresee  and  plan  and  labor,  all  this  educates  the 
farmer  and  gives  him  energy  and  independence ;  and  wher¬ 
ever  there  is  a  broad  basis  of  such  independent  yeomanry  to 
lean  back  upon  when  heavy  taxes  are  to  be  raised  and  strong 
blows  of  battle  are  to  be  struck,  the  national  safety  and  posi¬ 
tion  are  assured. 

France  and  England  are  instructive  examples  in  this  whole 
matter.  In  France,  since  the  abolition  of  all  entails  and 
primogenital  rights  b}^  the  revolution  of  1789,  and  under  the 
action  of  the  law  requiring  the  equal  partition  of  a  man’s 
landed  estate  among  his  children,  the  lands  have  become 
subdivided  into  small  parcels,  averaging  about  fourteen  acres 
to  each  owner.  Nearly  one-fourth  of  the  entire  population 
of  France  are  proprietors  of  land  either  in  town  or  country. 
There  are  very  nearly  123,000,000  of  acres  owned  by  indi¬ 
viduals.  In  1866  these  lands  were  officially  estimated  to  be 
worth  $31,000,000,000,  and  the  annual  net  income  from  them 
$937,500,000.  In  1875  the  yield  of  French  wine  rose  to 
84,000,000  hectolitres,  or  over  2,000,000,000  gallons,  though 
this  was  hy  much  the  largest  }ield  on  record.  In  point  of  a 
pretty  regular  increase  of  agricultural  products  throughout 
this  century,  with  the  exception  of  wine  in  these  later  years  ; 
in  point  of  an  industrious,  frugal,  cheerful  peasantry ;  in 
point  of  a  very  general  desire  and  ability  to  purchase  land  ; 
in  point  of  showing  that  subdivision  ceases  so  soon  as  the 
lands,  if  divided  further,  would  be  less  profitable  in  produc¬ 
tion  ;  in  point  of  pauperism  ;  in  point  of  national  strength 
and  weight,  in  spite  of  disasters  in  war,  and  in  spite  of  a  cen¬ 
tralized  and  repressive  government ;  in  point  of  the  easy 


LAND. 


297 


introduction  and  maintenance  of  republican  institutions , 
and  in  point  of  an  ability  in  the  peasantry  to  loan  to  govern¬ 
ment  in  an  exigency  enormous  sums  of  money  in  the  aggre¬ 
gate  ;  a  long  experience  has  shown  that  the  practical  work¬ 
ings  of  this  subdivision  of  the  land  have  been  most  happy. 

In  England,  on  the  other  hand,  the  monster-farm  system 
prevails.  According  to  the  Domesday  Book  of  1875,  710 
persons  owned  J  of  the  geographical  area  of  England  and 
Wales,  the  aggregate  holdings  of  the  100  largest  private 
owners  were  3,852,000  acres,  the  Duke  of  Northumberland 
owned  in  one  count}7  181,000  acres,  the  two  old  Universities 
held  235,553  acres  in  all  parts  of  England  and  Wales,  while 
the  entire  acreage  is  but  34,537,158  acres.  The  system  of 
leased  lands  extends  also  over  Scotland  and  Ireland.  The 
late  Earl  of  Leitrim,  assassinated  in  1878,  owned  95,000 
acres  in  three  Irish  counties,  and  there  were  about  20  land¬ 
lords  in  Ireland  who  then  held  more  land  than  he.  There 
are  20,815,460  acres  of  land  in  Ireland.  The  national  results 
of  this  system,  so  far  as  we  can  trace  them  separately,  have 
been  about  what  we  should  expect  them  to  be.  It  is  hard  to 
say  just  how  much  is  due  to  bad  laws  of  land,  how  much 
to  irreducible  differences  of  race  and  religion,  and  how  much 
to  political  remnants  of  the  feudal  system  ;  but  it  is  clear 
enough,  that  the  first  cause  has  had  much  to  do  with  the 
patent  fact,  that  while  there  are  upper  and  middle,  and  lower 
and  lowest,  classes,  a  homogeneous  British  people  are  not  to 
be  found.  In  what  used  to  be  justly  called  the  u  irretrieva¬ 
ble  helotism  ”  of  the  laboring  classes  ;  in  an  unmeasured  in¬ 
equality  of  fortunes  aud  comforts  ;  in  an  average  of  1,169,043 
persons  in  the  three  kingdoms  relieved  by  means  of  the  poor- 
rate  on  a  specified  day  of  each  year  from  1849  to  1871,  of 
whom  on  the  average  207,890  were  able-bodied  adults  ;  in  an 
annual  poor-rate  raised  Irp  taxation  of  $53,187,225  for  the 
same  23  years  on  an  average,  some  of  which,  however,  was 
expended  for  other  purposes  ;  in  the  lack,  felt  alike  in  war 
and  peace,  of  a  large  class  of  sturdy  yeomanry,  the  strength 


298 


POLITICAL  ECONOMY. 


of  a  State  ;  in  the  frequent  recurrence  of  land  troubles  of 
vast  magnitude  in  Ireland  ;  and  perhaps  also  in  a  consequent 
sinking  of  relative  position,  power,  and  influence,  former 
times  being  held  up  with  the  present,  as  compared  with 
France  and  the  other  first-class  powers  ;  may  doubtless  be 
seen  some  of  the  special  results  of  vicious  land  laws.  No 
degree  of  merit  in  the  other  parts  of  the  British  system  can 
ever  comj  ensate  the  want  of  just  and  broadly  liberal  laws 
of  land.  Still,  the  striking  merits  of  other  parts  of  that 
system  are  alleviating  results  even  here.  The  commercial 
system  is  admirable  beyond  that  of  any  other  country  in  the 
world.  The  money  system  and  the  taxing  system  are  rela¬ 
tively  simple  and  excellent.  Consequently,  on  the  whole  bal¬ 
ance  of  results,  Britain  is  prosperous  and  powerful.  Wages 
are  constantly  rising,  and  pauperism  is  constantly  declining. 
At  the  close  of  1881,  John  Bright  declared,  that  the  main 
lines  of  wages  in  the  cotton  mills  of  Lancashire  had  doubled 
in  forty  years ;  and  when  it  comes  to  the  purchasing-power 
of  these  wages,  with  the  single  exception  of  food,  Britain 
is  the  cheapest  market  in  the  wide  world  for  the  necessaries 
and  comforts  of  life. 

We  may  condense  the  discussions  of  this  chapter  into  the 
following  propositions :  — 

1.  The  questions  of  Land  test  the  powers  of  the  economist 
to  their  utmost. 

2.  A  just  generalization  covers  readily  all  the  relevant 
cases. 

3.  A  distinction  must  he  made  between  Land  as  a  physical 
thing  and  Land  as  a  valuable  thing. 

4.  Land  is  a  Commodity  made  such  by  human  efforts ,  and 
its  sale ,  its  produce ,  and  its  rent ,  come  under  the  ordinary 
laws  of  value. 

5.  Valuable  land  is  a  form  of  Capital ,  and  as  such  is 
subject  to  the  laic  of  diminishing  return. 

6.  Private  owyiership  in  lands  is  a  dictate  of  the  deepest 
justice  and  of  the  longest  experience. 


LAND. 


299 


7.  The  rent  of  leased  lands  is  but  the  return-service  of  the 
cultivator  for  the  use  of  the  capital  of  the  land-owner. 

8.  It  is  riot  the  law  of  diminishing  returns ,  nor  the  differ - 
ences  in  fertility  that  cause  rent ,  but  the  price  of  produce 
under  demand  and  supply. 

9.  Superior  soils  pay  a  rent  because  the  price  of  produce 
justifies  the  cultivation  of  inferior  soils. 

10.  The  corn-laws  of  England  were  abominable  because 
they  raised  prices ,  and  therefore  rents. 

11.  The  price  of  produce  as  of  every  thing  else  is  deter¬ 
mined  by  the  demand  for  it  and  the  supply  of  it. 

12.  As  lands  are  capital ,  so  rents  are  profits. 

13.  Fee-simple  in  the  hands  of  actual  cultivators  is  the  best 
tenure ;  long  leases  are  better  than  short  ones;  and  reasonable 
tenant-rights  should  be  guarded  by  law. 


300 


POLITICAL  ECONOMY. 


i 


CHAPTER  VIII. 

COST  OF  PRODUCTION. 

There  are  only  three  categories  of  valuable  things :  first, 
commodities  ;  second,  services  ;  and  third,  credits.  Credits 
will  shortly  be  considered  at  length  in  the  chapter  under  that 
title  ;  services  have  already  been  specially  treated  in  the  chap¬ 
ter  on  4  4  Labor  ;  ’  ’  and  the  general  principles  of  value  already 
laid  down  cover  alike  all  three  of  the  categories.  But  there 
are  certain  subordinate  principles  of  our  science,  which  are 
applicable  to  commodities  alone.  Land,  so  far  as  it  is  ever 
subject  to  sale,  is,  as  we  have  just  seen,  a  commodity  ;  its 
products  are  commodities ;  the  hired  laborers  who  till  it,  ren¬ 
der  services;  and  the  leases,  under  which  the  tenants  culti¬ 
vate  it  in  lieu  of  their  landlords,  are  rights ,  or  credits.  These 
three  things  are  intimately  associated  of  course,  inasmuch 
as  they  are  all  salable,  and  thus  all  come  under  one  genus. 
Still,  in  the  present  chapter  we  must  bring  forward  some 
supplementary  matters  relating  to  value,  which  concern  com¬ 
modities  alone,  and  which  could  not  properly  be  discussed 
until  the  subjects  of  labor,  capital,  and  land,  were,  at  least 
in  their  ground  principles,  understood.  We  are  now  in  posi¬ 
tion  to  be  able  to  analyze  the  Cost  of  Production  of  those 
material  things  exposed  for  sale,  which  are  technically  called 
Commodities. 

While  we  were  inquiring,  in  the  chapter  on  value,  whether 
such  a  thing  as  a  measure  of  value  were  possible,  it  was 
remarked  that  some  political  economists  have  thought  that 
the  cost  of  production  of  any  commodity  is  the  most  accu¬ 
rate  measure  of  its  general  purchasing-power ;  and  it  might 


COST  OF  PRODUCTION. 


301 


have  been  added,  that  these  writers  consider  tLat  there  is 
such  a  thing  as  natural  value ,  distinct  from  market  value, 
that  natural  value  is  the  cost  of  production,  and  that  market 
value  oscillates  perpetually  around  that,  and  tends  constantly 
to  return  to  it.  How  far  these  views  are  just,  how  far  cost 
of  production  constitutes  a  law  of  value  within  the  all-com¬ 
prehending  law  of  demand  and  supply,  is  the  point  to  which 
attention  is  now  directed. 

It  is  noticeable,  that  while  almost  all  people  put  forth 
onerous  efforts  to  satisfy  the  present  and  immediately  pro¬ 
spective  wants  of  other  people,  in  view  of  receiving  back 
from  them  corresponding  efforts  to  satisfy  their  own  present 
and  immediately  prospective  wants,  there  are  some  people, 
who  have  both  foresight  and  capital,  who  set  to  work  to 
make  preparations  in  reference  to  services  which  they  expect 
to  render  some  time  in  the  future ;  and  it  is  evident  that  this 
matter  of  the  cost  of  production  has  an  especial  bearing  upon 
those  classes  of  production  in  which  permanent  investments 
are  made,  looking  to  future  rather  than  to  present  exchanges. 
It  becomes  necessary  to  attend  to  cost  of  production  simply 
because  cost  of  production  is  sometimes  an  exact  measure 
of  one  of  the  elements  out  of  which  value  springs,  namely, 
the  element  of  effort.  When  a  surgeon,  for  example,  charges 
fifty  dollars  for  cutting  off  a  man’s  leg,  cost  of  production  is 
an  impertinent  phrase  in  relation  to  such  a  service,  and  is  no 
measure  of  the  effort ;  but  when  a  capitalist  invests  $20,000 
in  a  cutlery  establishment,  hires  all  his  labor,  and  at  the  end 
of  the  year  has  produced  5,000  knives,  cost  of  production 
has  a  definite  meaning  as  applied  to  each  one  of  the  knives, 
and  is  an  accurate  measure  of  the  one  element  of  effort,  which 
goes,  together  with  other  elements,  to  determine  its  value. 
It  is  not  true  at  all  that  cost  of  production  alone  determines 
the  value  of  the  knife,  or  is  a  measure  of  the  value  of  the 
knife,  but  it  is  true  that,  in  this  case,  and  in  all  cases  in  which 
a  commodity  is  produced  by  a  definite  capital  invested  for  a 
fixed  time,  and  by  labor  wholly  hired,  or  estimated  as  hired, 


302 


POLITICAL  ECONOMY. 


the  cost  of  production  is  an  exact  measure  of  one  of  the 
four  elements  which  go  to  determine  value,  namely,  of  one 
effort. 

Now  let  us  suppose  that  when  these  knives  are  exposed 
for  sale,  no  such  return-services  are  offered  for  them  as  are 
held  by  the  maker  to  be  satisfactory.  He  may  indeed,  in  order 
to  avoid  a  still  greater  loss,  sell  his  knives  for  less  money 
than  it  has  cost  to  manufacture  them,  but  it  is  evident  that 
he  will  not  go  forward  at  present  in  his  enterprise  of  making 
knives.  He  will  suspend  operations,  or  withdraw  from  the 
business  ;  and  his  action  in  this  respect  will  affect  the  supply 
of  knives  to  lessen  it ;  and  the  next  equalization  of  demand 
and  supply  will  be  likely  to  adjust  a  market  value  more  favor¬ 
able  to  knife-makers.  Or  if,  when  the  knives  are  exposed 
for  sale,  they  meet  with  an  exchange  at  very  remunerative 
rates,  our  capitalist  is  now  stimulated  to  increase  his  produc¬ 
tion,  to  put  back  his  profits  into  his  business,  and  perhaps 
to  invest  in  it  additional  principal.  His  action  in  this  respect 
will  affect  the  supply  of  knives  to  increase  it ;  and  the  next 
equalization  of  demand  and  supply,  or  if  not  the  next,  some 
subsequent  one,  will  be  likely  to  adjust  a  new  market  value 
less  favorable  to  knife-makers.  Thus  it  is  seen,  that  abso¬ 
lute  cost  of  production  influences  value  not  directly,  but 
remotely,  through  its  influence  on  supply.  To  suppose  and 
to  say  that  the  cost  of  production  of  one  commodity  deter¬ 
mines  its  value  in  an  exchange  with  another,  is  to  perpetuate 
the  old  mistake  of  ignoring  the  second  commodity,  is  to  re¬ 
iterate  the  fallacy  that  value  is  an  independent  quality  of 
one  thing,  in  short,  is  to  confuse  the  whole  subject  of  value. 
When  the  writers  referred  to  speak  of  the  “  natural  value  ” 
of  any  commodity,  they  mean  its  absolute  cost  of  produc¬ 
tion  ;  but,  at  this  stage  of  our  inquiry,  it  surely  cannot  be 
necessary  to  repeat  the  thought  already  so  often  expressed 
in  substance,  that  an  analysis  of  one  component  part  falls 
far  short  of  determining  the  resultant  of  four  component 
parts.  Professor  Jevons  puts  this  in  his  own  strong  way, 


COST  OF  PRODUCTION 


303 


when  he  says:  u  The  fact  is,  that  labor  once  expended  has 
no  influence  on  the  future  value  of  any  article ;  it  is  gone 
and  lost  forever.  In  commerce,  bygones  are  forever  b}r- 
gones.”  In  another  place,  the  same  writer  lays  down  the 
maxim  too  broadly  :  4  ‘  The  value  of  labor  is  determined  by 
the  value  of  the  product,  not  the  value  of  the  product  by 
that  of  labor.”  The  exact  truth  is,  the  value  of  labor,  as 
of  every  thing  else,  is  gauged  by  the  Demand  for  it  and  the 
Supply  of  it. 

But  while  these  general  statements  are  just,  there  are 
other  points  of  view  in  which  the  cost  of  production  of  com¬ 
modities  comes  to  be  practically  important,  and  thus  worthy 
of  a  careful  analysis.  From  its  obvious  relations  to  Supply 
already  exemplified,  the  cost  of  any  particular  commodities 
is  constantly,  though  indirectly,  influencing  the  value  of 
other  similar  commodities  afterwards  to  be  put  upon  the 
market.  Also,  in  respect  to  permanent  investments  looking 
solely  to  future  production,  cost  becomes  very  important, 
because,  while  it  can  never  determine  the  purchasing-power 
of  the  product,  it  is  alwa3rs  one  element  in  determining  it ; 
and  especially  because  the  improvements  which  are  all  the 
time  being  introduced  into  the  mechanical  and  other  pro¬ 
cesses  of  such  production,  which  improvements  alwa}^  tend 
to  lessen  the  cost  of  the  product,  have  the  effect  to  lessen 
the  value  of  all  permanent  investments,  unless  similar  im¬ 
provements  be  inaugurated  in  connection  with  them.  The 
march  of  improvement  is  so  constant,  that  old  machinery 
and  old  processes  are  rapidly  depreciated  ;  and  a  calculated 
tost  of  future  production  in  one  establishment  is  almost 
sure  to  be  disturbed  by  new  labor-saving  inventions  in  other 
simdar  establishments,  which  will  be  able  in  consequence  to 
offer  the  commodity  at  a  lower  rate  than  the  rate  estimated  ; 
in  which  case  the  value  of  the  product  will  not  conform  to 
the  estimated  or  even  actual  cost  of  production  in  that 
establishment,  but  will  pitilessly  fall  to  the  point  at  which 
similar  commodities  are  offered  by  the  more  fortunate  pro- 


304 


POLITICAL  ECONOMY. 


dueers.  For  these  reasons  we  must  inquire  carefully  after 
the  elements  of  cost  of  production. 

Mill  (iii.  4)  says  correctly  that  these  elements  are  only 
two,  namely,  Cost  of  Labor ,  and  Cost  of  Capital.  These 
two  are  the  only  onerous  elements  that  enter  into  the  produc¬ 
tion  of  commodities.  Assisting  the  processes  are,  indeed, 
the  natural  powers  of  land,  water,  wind,  steam,  electricity, 
and  so  on,  but  as  these  are  always  gratuitous,  they  form  no 
element  of  cost.  Labor  must  have  its  wages ,  and  capital 
must  have  its  profits.  Besides  current  profits,  capital  must 
also  lay  by  a  sinking-fund  to  replace  the  original  capital 
when  worn  out.  It  will  be  in  vain  to  search  for  any  other 
ingredient  of  cost  than  these  two.  In  some  of  the  best  of 
our  New  England  mills  and  foundries  a  careful  record  is 
kept  of  the  cost  of  materials  and  labor  going  into  any 
single  machine,  or  other  product,  which  they  have  contracted 
to  deliver ;  no  account  being  taken  in  this  record  of  the 
wear  and  tear  of  buildings  and  tools,  and  other  incidental 
costs  of  capital. 

1.  Let  us  examine  first  the  cost  of  labor.  By  this  is 
meant,  of  course,  the  cost  to  the  employer ,  and  not  to  the 
laborer  himself,  in  reference  to  whom  the  phrase  would  have 
no  meaning.  Now,  if  we  make  an  exhaustive  analysis  of 
the  cost  of  labor  to  the  employer,  we  shall  find  that  there 
are  only  three  things  that  go  to  make  up  its  cost.  First,  the 
efficiency  of  the  laborer ;  second,  the  rate  of  nominal  wages 
paid  ;  and  third,  the  cost  to  the  employer  of  that  in  which 
the  wages  are  paid.  Let  us  see  how  each  of  these  acts,  and 
how  all  act  together,  (a)  There  are  great  differences  in 
the  efficiency  of  workers  even  on  the  same  farm  or  in  the 
same  mill  within  the  same  country,  and  still  greater  differ¬ 
ences  of  efficiency  when  workers  in  different  countries  are 
compared ;  consequently,  if  an  employer  hire  two  men  to 
work  for  him  at  the  same  rate  of  wages,  and  if  one  be 
twice  as  efficient  a  laborer  as  the  other,  then  the  cost  of  the 
labor  of  the  first  to  the  employer  is  only  one  half  the  cost 


COST  OF  PRODUCTION. 


305 


of  the  labor  of  the  second.  What  the  employer  wants  is  to 
get  things  done;  and  therefore,  a  high  rate  of  icages  does 
not  import  a  high  cost  of  labor  whenever  the  labor  is  very 
efficient.  As  a  rule,  the  cost  of  labor  in  reference  to  a 
given  product  is  the  least  in  those  countries  in  which  the 
rates  of  wages  are  the  highest ;  because,  it  is  found,  that  a 
high  efficiency  of  labor  accompanies  both  as  a  cause  and  an 
effect  high  rates  of  wages.  A  vast  mass  of  current  falla¬ 
cies  are  disposed  of  in  a  moment  by  this  truth  seen  in  its 
grounds.  The  United  States  show  the  highest  rates  of 
wages  in  the  world,  and  at  the  same  time  show  the  lowest 
costs  of  labor,  because  as  a  rule  the  laborers  are  more  effi¬ 
cient  than  elsewhere.  England  has  the  highest  rates  of 
wages  and  the  lowest  costs  of  labor  in  Europe  for  the  same 
reason.  ( b )  There  are  striking  differences  in  the  rates  of 
nominal  wages  paid  for  a  day’s  work  in  different  parts  of 
the  same  country,  and  especially  in  different  countries.  If 
there  be  no  difference  in  the  efficiency  of  the  laborers  as 
between  Massachusetts  and  Georgia,  or  as  between  old  Eng¬ 
land  and  New  England,  and  no  difference  in  the  cost  of  that 
in  which  the  labor  is  paid,  then  the  differing  rates  affect 
at  once  the  relative  costs  of  labor.  *  If  a  Georgia  mill-owner 
can  get  just  as  efficient  a  laborer  for  one  dollar  a  day  as  the 
Massachusetts  owner  must  pay  two  dollars  for,  the  third 
element  being  common,  then,  so  far  forth,  the  cost  of  labor 
in  Massachusetts  is  double  that  in  Georgia.  So  as  between 
the  United  States  and  England,  or  Germany  and  France. 
If  the  rate  of  wages  at  any  point  rises  or  falls,  efficiency 
of  labor  and  cost  of  pay  remaining  the  same,  then  of  course 
cost  of  labor  rises  or  falls  there.  But  while  rates  of  wages 
vary  greatly,  the  costs  of  labor  are  nearly  uniform  the  world 
over  j  because,  the  differences  in  rates  come  from  differences 
in  efficiency  and  in  the  cost  of  the  money  or  other  product 
in  which  wages  are  paid.  “In  India,  although  the  pay 
of  daily  labor  ranges  from  4^  to  Gd.  a  day,  mile  for  mile 
the  cost  of  railway  work  is  about  the  same  as  in  England.” 


306 


POLITICAL  ECONOMY. 


(c)  If  that  commodity,  whether  money  or  other,  in  which 
wages  are  paid,  varies  in  cost  to  the  capitalist,  then  the  cost 
of  labor  compensated  by  that  commodity,  efficiency  of  labor¬ 
ers  and  nominal  rate  of  pay  remaining  the  same,  will  of 
course  be  varied  thereby.  We  shall  learn  in  the  next  chapter 
that  the  value  of  money  is  by  no  means  invariable  even  in 
one  country,  as  we  have  already  learned  the  variable  nature 
of  all  other  values ;  and,  accordingly,  the  third  element  in  a 
cost  of  labor  is  the  cost  of  that  in  which  the  labor  is  paid. 
Assuming,  as  we  may,  that  wages  are  paid  in  money,  any 
country  that  has  for  any  reason  a  more  abundant  money 
than  another,  may  well  pay  higher  rates  of  nominal  wages 
without  making  its  costs  of  labor  higher  than  in  that.  In 
other  words,  any  country  that  has  its  current  prices  of  com¬ 
modities  higher  than  another,  may  pay  higher  nominal  wages 
without  having  a  higher  cost  of  labor.  The  United  States, 
for  example,  has  usually  had  a  very  abundant  money  (not 
always  of  the  best  kind) ,  which  has  tended  to  make  high  the 
current  prices  of  commodities,  and  this  has  enabled  capital¬ 
ists  to  pay  high  nominal  rates  of  wages,  while  their  cost  of 
labor  was  not  enhanced  at  all  by  the  extra  rate. 

This  analysis  of  the  cost  of  labor  throws  a  clear  light 
upon  several  otherwise  dark  points :  it  explains,  w'hy  the 
employer  is  quite  willing  to  pay  liberal  wages  to  his  efficient 
workmen,  and  rates  still  more  liberal  wffien  money  becomes 
inflated ;  why  countries  with  very  low  rates  of  wrages,  as 
India,  have  no  advantage  in  international  trade  over  coun¬ 
tries  with  high  rates  of  wages,  as  England ;  why  it  is  the 
poorest  kind  of  logic  to  jump  to  the  conclusion,  that,  be¬ 
cause  rates  of  wages  in  Germany  are  about  one-half  those 
in  England,  therefore  Germany  ought  to  undersell  England 
in  the  markets  of  the  world ;  wlw,  when  De  Quinccy  says, 
that  Profits  are  the  leavings  of  Wages,  he  must  mean  by 
“wages”  the  cost  of  labor;  why  the  common  confusion 
in  the  minds  of  men  between  rates  of  wages  and  costs  of 
labor  leads  to  false  conclusions  through  errors  of  reasoning ; 


COST  OF  PRODUCTION. 


807 


why  the  capitalist  as  such  has  no  interest  in  low  money 
wages,  but  only  in  a  low  cost  of  labor,  which  is  entirely 
consistent  with  high  money  wages  ;  why  a  rise  in  money 
wages  (money  remaining  as  before)  will  not  lessen  profits 
any,  if  there  be  an  accompanying  increased  efficiency  of 
labor,  as  there  is  apt  to  be  in  that  case ;  and  finally  why 
there  is  no  real  antagonism  but  rather  a  real  harmony  of  in¬ 
terests  between  employers  and  laborers.  Employers  as  such 
are  interested  in  having  the  costs  of  labor  low,  and  so  are 
countries  engaged  in  foreign  trade,  but  neither  have  the  least 
interest  in  low  rates  of  wages  as  such.  So  far  of  cost  of  labor. 

2.  The  second  element  in  the  Cost  of  Production  is  the 
Cost  of  Capital ;  and  this  too  may  be  analyzed  into  three 
variables,  no  one  of  which,  any  more  than  the  three  varia¬ 
bles  in  the  cost  of  labor,  can  be  safely  neglected  in  the 
reckoning  that  has  for  its  end  a  prospective  Cost  of  Produc¬ 
tion.  These  are,  first,  the  current  rate  per  centum ;  second, 
the  time  for  which  the  capital  is  advanced ;  and  third,  the  - 
liability  of  that  form  of  capital  to  slow  or  rapid  wearing-out. 
(a)  If  we  suppose  that  the  rate  at  Amsterdam  be  3  and 
that  at  New  York  7,  that  the  cost  of  labor  be  equal  in  the 
two  cities,  that  the  time  of  advance  be  one  year,  and  that 
there  be  no  liability  of  the  capital  to  wear  out ;  then  a  com¬ 
modity  made  at  Amsterdam  with  an  outla}’  of  $100  can  be 
sold  for  $103,  while  a  similar  commodity  made  at  New  York 
with  the  same  outla}’  cannot  be  sold  for  less  than  $107. 
All  other  things  being  equal,  a  low  rate  per  centum  of  capi¬ 
tal  in  any  country  gives  that  country  an  advantage  in  selling 
a  given  commodity  for  money  in  the  markets  of  the  world, 
because  its  cost  of  production  is  less.  ( b )  Let  the  same 
suppositions  be  continued,  except  that  the  time  of  advance 
at  New  York  be  extended  to  4  years.  Then  the  commodi¬ 
ty  may  be  sold  at  Amsterdam,  as  before,  at  $103,  but.  the 
corresponding  commodity  at  New  York  for  not  less  than 
$131,  so  far  as  mere  cost  of  production  determines  the 
prices.  This  point  is  well  shown  up  also  in  the  case  of 


308 


POLITICAL  ECONOMY. 


wine,  which  to  reach  its  perfection  requires  to  be  kept  a 
number  of  years :  if  it  be  a  genuine  article,  and  ripe,  its 
cost  is  much  enhanced  by  its  delay  in  reaching  the  market. 
If  the  period  of  advance  be  long,  and  the  rate  high  at  the 
same  time,  the  cost  of  capital  from  the  two  causes  combined 
multiplies  the  cost  of  the  product ;  and  only  countries  in 
which  the  rates  are  low  can  successfully  engage  in  enter¬ 
prises  requiring  a  large  capital  to  be  invested  for  long 
periods  before  returns  are  realized.  One  million  of  Dutch 
capital  at  3  °f0  a  year,  expecting  to  realize  returns  only 
after  20  years,  may  be  remunerated  by  products  selling  for 
$1,806,111  ;  but  American  capital  under  like  circumstances, 
except  that  the  rate  is  7,  must  have  a  return  of  $3,869,685. 
(c)  All  forms  of  capital  wear  out,  but  some  forms  much 
faster  than  others,  and  this  makes  a  difference  in  the  sink¬ 
ing-funds  reserved  from  gross  profits  in  order  to  replace  the 
principal.  This  difference  affects  the  cost  of  capital,  and 
thus  the  cost  of  production,  and  thus  indirectly  the  value  of 
the  product.  Suppose  there  are  two  commodities  A  and  B 
produced  in  two  establishments,  in  each  of  which  is  invested 
a  capital  of  $11,000,  in  one  of  which  is  a  machine  costing 
$1,000,  which  is  wholly  worn  out  by  one  year’s  use,  and  in 
the  other  a  machine  costing  the  same  sum,  which  will  last, 
however,  for  ten  years.  Let  the  rate  per  cent  be  ten,  and 
the  time  consumed  in  completing  the  products  be  one  year. 
There  is  a  difference  in  the  cost  of  capital  in  the  two  estab¬ 
lishments,  and  this  difference  indirectly  but  immediately 
appears  in  the  value  of  the  respective  products.  To  A  must 
be  charged  not  onty  $1,100,  the  interest  on  the  capital  at  the 
current  rate,  but  also  another  $1,000,  wherewith  to  replace 
the  machine  already  worn  out  by  the  year’s  production.  A 
cannot  be  sold  without  loss  for  less  than  $2,100.  B,  how¬ 
ever,  will  cost  less.  To  it  must  be  charged,  as  before,  $1,100, 
current  rate  of  profit  on  the  capital  invested,  and  only  $100 
to  replace  after  ten  years’  use  the  machine.  B,  therefore,  can 
permanently  sell  without  loss  for  $1,200. 


COST  OF  PRODUCTION. 


309 


Some  conclusions  worthy  of  notice  follow  from  these  analy¬ 
ses.  First,  since  cost  of  production  is  made  up  only  of  cost 
of  labor  and  cost  of  capital,  if  the  cost  of  labor  be  for  any 
reason  enhanced,  nothing  can  prevent  this  higher  cost  from 
taking  effect  and  exhibiting  itself  in  lower  profits.  Second, 
rates  of  money-wages ,  or  any  rise  or  fall  of  them,  provided 
they  are  uniform,  or  uniformly  rise  and  fall,  in  those  depart¬ 
ments  of  production  whose  commodities  exchange  with  each 
other,  have  no  effect  at  all  upon  value,  since  they  are  common 
factors  in  two  costs  of  production,  and  like  all  common  fac¬ 
tors,  cancel  each  other ;  but  any  inequality  of  money-wages 
in  these  departments  that  affects  the  cost  of  labor,  will  have 
an  indirect  but  controlling  influence  on  the  value  of  the  com¬ 
modities.  Third,  the  same  principle  holds  in  rates  of  profits. 
So  far  as  the  rates  are  common  to  all  branches  of  production, 
the  capital  advanced  for  the  same  period,  with  a  similar  risk 
of  deterioration  or  loss,  and  so  far  as  any  one  or  all  of  these 
advance  or  recede  uniformly  and  together,  they  do  not  affect 
the  value  of  any  of  the  commodities  produced.  But  inequal¬ 
ity  in  any  one  of  these  points,  varies  the  relative  cost  of 
capital,  and  consequently,  the  cost  of  production,  and  con¬ 
sequently  the  value  of  the  product.  Fourth,  though  high 
rates  of  profit,  all  other  things  being  equal,  increase  the  cost 
of  capital  and  so  of  production,  it  is  a  strange  perversion  of 
logic  to  conclude  that  countries  with  high  rates  of  profit  are 
at  some  great  disadvantage  in  international  trade  as  compared 
with  countries  with  lower  rates.  The  former  are  indeed  at  a 
disadvantage  in  trying  to  undersell  the  latter  in  the  markets 
of  the  world,  when  each  offers  the  same  commodity  against 
money ;  but  then-  current  high  rates  of  profit  show  the  folly 
of  trying  a  trade  like  that,  since  they  must  have  excellent 
domestic  and  foreign  markets  for  other  things,  else  they 
could  not  realize  such  profits  on  all  their  capital  invested  ! 

Just  here  there  is  opened  up  to  us  a  clear  view  of  the 
influence  of  machinery  upon  profits  and  wages,  and  conse¬ 
quently  upon  values.  So  far  as  machinery  brings  into  play, 


310 


POLITICAL  ECONOMY . 


as  it  always  does,  a  gratuitous  natural  force,  it  is  outside  the 
pale  of  value  ;  but  since  the  machinery  itself  is  one  important 
form  of  value,  on  which  rates  per  centum  must  be  paid,  the 
more  machinery  employed  relatively  to  labor  in  the  produc¬ 
tion  of  any  given  commodities,  the  more  do  profits  enter  into 
their  cost  of  production,  and  the  more  powerfully  do  changes 
in  the  rate,  the  time  of  advance,  and  the  risk  of  wear-out, 
tell  upon  the  value  of  those  commodities  as  estimated  in  other 
commodities.  Or,  to  say  the  same  thing  in  other  words, 
the  more,  or  the  more  durable  the  machinery  employed  in  the 
production  of  any  commodity,  the  larger  becomes  the  element 
of  profit  in  a  price  now  absolutely  reduced ;  on  a  rise  or  fall 
of  the  rate,  therefore,  the  value  of  a  commodity  made  by 
more  or  more  durable  machinery  will  tend  to  rise  or  fall 
relatively  to  other  commodities. 

The  influence  of  machinery  upon  ivciges  cannot  be  stated 
with  quite  the  same  precision  of  terms  as  the  effect  of  it 
upon  profits.  Formerly  the  prejudice  was  almost  universal, 
and  is  still  wide-spread  in  many  parts  of  the  world,  that  the 
general  introduction  of  labor-saving  appliances  does  an  injury 
to  the  laborers  by  taking  away  their  work.  So  strongly  has 
this  been  felt  by  the  laborers,  that  in  England,  and  especially 
in  Ireland,  mobs  and  riots  have  usually  accompanied  the  in¬ 
troduction  of  machinery  into  those  departments  of  produc¬ 
tion  in  which  hand-work  had  previously  prevailed.  If  ivork 
were  what  laborers  really  wanted,  the  prejudice  in  question 
would  cease  to  be  such,  and  become  a  sound  opinion  ;  since 
the  only  object  and  result  of  introducing  machineiy  is  to 
lessen  work,  at  least  with  reference  to  a  given  product ;  and 
the  laborers,  to  be  consistent,  should  not  stop  with  opposing 
new  inventions,  but  should  destroy  all  forms  of  existing 
capital,  that  there  might  be  work  a  plenty  for  simple  human 
hands.  What  the  laborers  really  want,  however,  is  not  work, 
but  wages,  or  rather,  those  commodities  for  which  their  wages 
are  expended ;  and  the  question  is,  whether  labor-saving 
processes  tend  to  lessen,  not  work,  but  work’s  remuneration 


COST  OF  PRODUCTION. 


311 


The  general  appeal  can  be  made  to  experience  with  all  safety. 
As  a  matter  of  fact  and  experience,  it  has  not  been  found 
true  that  the  introduction  of  improved  processes,  the  substi¬ 
tution  of  Nature’s  forces  for  human  muscle,  has  deteriorated 
the  condition  of  laborers  in  those  departments  into  which  the 
inventions  have  been  brought,  or  the  condition  of  laborers 
generally.  Exactly  the  reverse  has  usually  taken  place ;  and 
wages  are  apt  to  be  highest  rather  than  lowest  in  connection 
with  the  most  and  the  most  durable  machinery,  and  higher 
rather  than  lower,  after  the  introduction  of  more  and  better 
machinery.  Operatives  in  manufactories,  for  instance,  are, 
as  a  rule,  better  paid  than  farm  laborers  ;  and  better  paid  in 
the  first  class  than  in  the  inferior  establishments.  Teamsters, 
in  this  country  at  least,  are  as  well  to  do  as  before  the  con¬ 
struction  of  railroads.  So  of  spinners,  weavers,  and  arti¬ 
sans  of  every  name.  In  explanation  of  these  general  facts, 
it  may  be  noticed,  (1)  that  labor  is  always  required  in  the 
construction  and  repairs  of  all  kinds  of  labor-saving  appli¬ 
ances,  and  so  far  forth,  a  new  market  for  labor  is  opened 
up  in  place  of  any  loss  of  market  possibly  resulting  from 
their  introduction  ;  (2)  these  forms  of  capital  alwaj’s  tend 
to  cheapen  the  products  which  they  help  to  create,  and  such 
products  because  they  are  cheap  find  a  wider  circle  of  con¬ 
sumers,  and  more  must  be  produced  to  supply  a  now  broader 
market,  and  so  far  forth  the  demand  for  labor  may  be  stronger 
than  it  was  before ;  (3)  these  improvements  cheapen  also 
the  commodities  consumed  by  the  laborers  themselves,  and 
therefore  a  given  rate  of  wages  now  secures  for  them  a  higher 
grade  of  comforts.  Combining  these  observations  with  the 
law  of  distribution  already  pointed  out,  and  the  conclusion 
is  fairly  established  that  the  effect  of  machinery  is,  and  wid 
be,  rather  favorable  than  otherwise  to  the  laboring  classes. 

Now,  as  a  result  of  this  entire  discussion,  attention  must 
be  called  to  a  generalization,  which  has  been  more  or  less 
fully  noticed  by  several  writers,  and  with  the  presentation 
of  which,  this  branch  of  the  subject  will  be  concluded.  Since, 


812 


POLITICAL  ECONOMY . 


by  the  aid  of  the  different  forms  of  capital,  and  such  a  divis¬ 
ion  of  labor  as  that  every  part  of  it  is  made  most  efficient, 
the  cost  of  production  of  most  kinds  of  manufactured  articles 
tends  to  decline  as  compared  with  the  cost  of  production  of 
food  and  raw  materials,  in  whose  production  these  advan¬ 
tages  are  less  perfectly  attainable,  there  is  a  constant  tend¬ 
ency  towards  approximation  in  the  value,  and,  if  money 
remain  unchanged,  in  the  price,  of  raw  materials  and  of 
finished  products ;  and  in  the  degree  of  this  approximation 
will  be  found  a  gauge  of  the  success  with  which  gratuitous 
natural  forces  and  improved  facilities  of  art  have  been  made 
available  in  production.  This  single  statement,  clearly  per¬ 
ceived  in  its  grounds,  grasps  and  holds  the  principal  results 
of  our  discussions  thus  far.  Examples  of  the  principle  offer 
themselves  on  every  hand.  Let  us  look  at  cotton  cloth.  At 
the  opening  of  this  century,  the  average  price  of  raw  cotton 
was  just  about  twenty  cents  a  pound  ;  at  the  middle  of  the 
century,  and  onwards,  the  average  price  was  just  about  ten 
cents  a  pound.  At  the  first  peiiod,  although  accurate  tables 
are  wanting,  the  average  price  of  cotton  cloth  could  not  have 
been  less  than  sixty  cents  a  yard ;  at  the  second  period,  it 
could  hardly  have  been  more  than  ten  cents  a  yard.  The 
absolute  price  of  raw  cotton  diminished  in  the  interval  in 
the  ratio  of  2  to  1  ;  while  the  absolute  price  of  cotton  cloth 
diminished  in  the  interval  in  the  ratio  of  6  to  1.  Relatively 
to  a  yard  of  finished  cloth,  the  raw  material  greatly  rose  in 
value,  since  at  the  first  it  took  three  pounds  to  buy  a  yard, 
and  at  the  last  but  one  pound.  There  was  a  marked  approx¬ 
imation  all  the  while  of  the  price  of  the  finished  product 
towards  the  price  of  the  raw  material ;  in  other  words,  less 
and  less  difference  of  price  was  due  to  the  cost  of  manufac¬ 
ture,  which  lessening  cost  marks  the  ever-increasing  efficiency 
in  the  production  of  commodities  of  the  gratuitous  powers  of 
Nature  applied  through  machinery.  According  to  Dr.  Ure, 
the  introduction  of  machinery  into  the  manufacture  of  lace, 
lessened  the  cost  of  that  product  in  the  ratio  of  50  to  1  ;  and 


COST  OF  PRODUCTION . 


313 


thereby,  and  to  that  degree,  approximated  the  pi  ice  of  a 
pound  of  such  lace  towards  the  price  of  a  pound  of  the 
cotton  from  which  it  was  made.  Food,  raw  materials,  and 
labor,  and  the  last  more  than  the  other  two,  tend  steadily  to 
advance  in  their  power  to  command,  that  is,  to  bu}T,  most 
kinds  of  finished  products  ;  and  therefore,  the  millions  who 
labor  with  their  hands,  and  the  other  millions  who  own  the 
soil  and  till  it,  have  already  advanced,  and  will  still  more 
advance,  in  a  scale  of  comforts,  with  the  advancing  centuries. 

We  may  now  give  a  summary  of  the  present  chapter  as 
follows :  — 

1.  There  is  only  one  kind  of  Value  cognizable  in  Politiccd 
Economy. 

2.  Cost  of  Production  is  the  measure  of  one  effort  in  one 
class  of  exchanges ,  and  therefore  influences  Value  indirectly 
by  its  action  on  Supply. 

3.  Cost  of  Production  is  made  up  of  two  elements  only , 
namely ,  Cost  of  Labor  and  Cost  of  Capital. 

4.  Cost  of  Labor  is  easily  analyzed  into  three  variables ,  in 
weighing  which  several  current  fallacies  are  exposed. 

5.  Employers  as  such  are  interested  in  loiu  costs  of  labor , 
which  are  entirely  consistent  with ,  and  often  accompany ,  high 
rates  of  wages. 

6.  Cost  oj  Capital  is  cdso  analyzable  into  three  variables , 
no  one  of  which  can  be  safely  neglected  either  in  the  processes 
of  reasoning  Dr  of  practical  production. 

7.  Profits  are  the  leavings  of  costs  of  labor. 

8.  The  use  of  more  and  better  and  more  durable  machinery 
is  equally  favorable  to  both  wages  and  profits. 

9.  A  given  amount  of  raw  material ,  of  food ,  and  of  labor, 
tends  to  command ,  that  is,  to  buy,  more  and  more  of  the  fin¬ 
ished  product. 


314 


P0LIT1CAI  ECONOMY, . 


J 


CHAPTER  IX. 

MONEY. 

While  Providential  arrangemements  in  the  physical  struc¬ 
ture  of  the  earth  and  in  the  moral  structure  of  society  fur¬ 
nish  the  occasions  and  the  limitations  of  exchanges,  the 
desires  and  efforts  and  estimates  of  men  play  the  chief  part 
upon  this  great  field.  Nature  and  men  co-operate  in  the 
determination  of  every  case  of  value  whatsoever ;  but  a 
distinction  may  be  drawn  with  advantage  which  really  divides 
economical  laws  into  two  classes.  The  providential  ele¬ 
ments  in  economics,  both  physical  and  social,  are  relatively 
fixed ;  and  so  are  those  principles  of  human  nature  related 
to  exchanges  which  may  be  said  to  be  universal  in  their  char¬ 
acter, —  such,  for  instance,  as  the  preference  to  receive  a 
larger  rather  than  a  less  return,  and  to  render  a  smaller 
rather  than  a  greater  effort ;  while  there  are  other  principles 
of  human  nature  related  to  exchanges  much  more  variable 
in  their  character,  such,  for  instance,  as  a  nation’s  choice  of 
the  kind  of  money  it  will  use,  or  the  kind  of  taxation  it  will 
impose.  It  follows  clearly  from  this,  that  some  economical 
laws  must  be  more  general  than  others,  owing  to  a  less  vari¬ 
ation  in  the  human  impulses  concerned  in  them :  it  follows, 
for  example,  that  the  law  of  landed  rents,  or  the  law  of  the 
approach  of  the  price  of  raw  materials  to  that  of  the  fin¬ 
ished  products,  is  more  universal  in  its  terms  than  most  of 
the  propositions  of  Money  and  Taxation  can  be. 

Though  it  seems  like  a  paradox,  it  is  yet  strictly  true,  that 
those  parts  of  Political  Economy  in  which  the  human  ele- 
incuts-;  of  variable  choice  predominate  over  the  relatively 


MONEY. 


315 


fixed  laws  of  nature  and  of  mind,  are  just  the  parts  hardest 
for  men  to  grasp  and  hold.  We  naturally  think,  and  it  is 
true,  that  difficulty  and  n^stery  are  found  in  those  depart¬ 
ments  in  which  an  infinite  mind  has  been  at  work  upon  an 
infinite  plan,  and  that  there  is  no  such  profundity  in  the 
works  of  men.  But  at  the  same  time,  even  those  natural 
laws,  like  gravitation,  which  are  clear  in  themselves,  if  they 
be  such  as  the  choices  of  men  have  to  do  with,  such  as  may 
be  modified  and  in  a  certain  sense  controlled  by  human 
actions,  become  from  that  very  circumstance  liable  to  diffi¬ 
culty  and  even  to  some  mystery.  All  the  truths  of  Money 
belong  to  this  class.  Still,  while  the  propositions  become 
less  general  on  that  account,  and  some  difficulties  are  found 
here  and  there,  there  is  no  use  at  all  in  saying  that  money  is 
such  an  elusive  agent  that- nobody  can  understand  it.  That 
is  the  language  of  indolence.  Money  is  wholly  a  matter 
of  man’s  device,  though  it  comes  into  contact  with  some¬ 
thing  greater  and  more  fixed  than  itself ;  it  was  invented, 
just  as  any  other  instrument  is  invented,  to  accomplish  a 
certain  purpose ;  and  it  would  be  strange  indeed  if  men  by 
taking  pains  could  not  comprehend  what  men  themselves 
have  devised.  We  hope,  accordingly,  in  the  following  para¬ 
graphs  to  clear  up  the  whole  subject  of  Money  completely. 
We  will  try  to  go  so  carefully  and  surely  into  this  topic,  that 
even  “the  wayfaring  men  shall  not  err  therein.”  In  this 
case,  we  will  not  begin  with  definitions  and  justify  them 
afterwards,  but  will  come  up  to  them  step  by  step,  and,  as 
it  were,  justify  them  beforehand. 

1.  Exchanges  may  go  forward  to  a  certain  extent,  —  may 
begin  and  become  profita  ble, without  the  use  of  any  money 
at  all.  Men  at  first  exchanged  services  directly  for  each 
other,  without  the  intervention  of  any  medium.  This  form 
of  trade  is  called  Barter.  Hiram,  king  of  Tyre,  furnished 
to  Solomon  a  certaiu  quantity  of  cedars  from  Lebanon,  and 
Solomon,  in  return,  furnished  the  Tyrians  a  certain  quantity 
of  wheat  and  oil.  This  may  serve  as  an  instance  of  barter, 


316 


POLITICAL  ECONOMY . 


although  mono}'  had  been  in  current  use  long  previously  to 
that  transaction,  as  is  seen  in  the  purchase  by  Abraham 
of  the  cave  and  field  of  Machpelah,  for  which  he  weighed 
out  four  hundred  shekels  of  silver,  current  money  with  the 
merchant.  It  is  obvious,  however,  that  while  barter  is  a 
great  deal  better  than  no  exchanges  at  all,  there  are  inherent 
difficulties  in  that  form  of  exchange.  Under  pure  barter, 
exchanges  are  pretty  much  limited  to  those  parties  each  of 
whom  is  in  position  to  render  to  the  other  such  services,  and 
in  such  quantities,  as  the  other  stands  in  direct  and  immedi¬ 
ate  need  of ;  it  is  not  enough,  under  these  conditions,  that 
a  man  should  have  a  service  to  sell,  but  also  he  must  find  a 
man  who  wants  that  specific  service,  and  more  than  this, 
a  man  who  not  only  wants  that  specific  service,  but  also  has 
a  service  to  render  in  return,  such  as  the  first  man  wants. 
If  A  has  wheat  which  he  wishes  to  exchange  for  a  coat,  he 
must  find  a  party  who  wants  wheat,  and  who  also  is  in  posi¬ 
tion  to  render  a  coat  in  exchange  for  it,  and  moreover  who 
wants  just  as  much  wheat  as  will  pay  for  a  coat,  no  more 
and  no  less  ;  if  he  wants  more,  he  may  have  nothing  to  ren¬ 
der  in  exchange  for  the  excess  which  A  is  willing  to  accept ; 
if  less,  A  may  have  nothing  which  the  other  wants,  besides 
wheat  with  which  to  help  pay  for  the  coat.  Even  in  the 
simpler  states  of  society,  the  inconvenience,  loss  of  time, 
and  deterioration  of  commodities  involved  in  direct  barter, 
are  very  great,  and  in  more  advanced  states  of  civilization 
would  be  intolerable,  if  it  were  possible,  as  it  is  not,  for 
society  to  become  advanced  under  those  conditions.  Ex¬ 
changes  are  so  limited  in  time,  place,  and  variety,  associa¬ 
tion  is  so  hampered,  and  the  development  of  all  peculiar 
talents  so  impeded,  under  a  system  of  simple  barter,  that 
one  of  the  initial  steps  in  the  progress  of  all  societies  has 
been  to  hit  upon  some  expedient  to  lessen  these  intrinsic 
difficulties  ;  and  so  to  facilitate  exchanges. 

2.  The  invention  of  money  was  nothing;  in  the  world  but 
the  selection  by  certain  people  in  a  certain  locality  of  some 


MONET. 


317 


commodity  then  and  there  valuable,  that  is  capable  of  buy¬ 
ing  some  things  then  and  there,  and  giving  to  that  by  general 
consent  the  capacity  of  buying  all  things  then  and  there 
salable.  The  thing  made  money,  whatever  it  was,  had  a 
limited  purchasing-power  to  start  with,  — no  instance  to  the 
contrary  has  ever  been  shown  ;  the  making  it  money  w^as 
merely  the  common  consent  that  thereafter  it  should  have  a 
general  purchasing-power ;  so  that,  whenever  anybody  had 
any  thing  to  exchange,  he  might  first  exchange  it  for  this 
product  valuable  before  but  now  generally  valuable ,  and  then 
with  this  product  in  hand  he  might  buy  whatever  he  might 
want  at  any  time  or  place.  Money  makes  no  alteration  in 
any  law  of  value,  but  merel}’  substitutes  for  convenience’ 
sake  in  every  transaction  in  which  it  plays  a  part,  a  universal 
for  a  specific  purchasing-power ;  a  book,  for  example,  has  a 
specific  purchasing-power ;  there  is  somebody  who  wants  it, 
and  is  willing  to  give  a  sum  of  money  for  it ;  and  the  owner 
by  the  sale  of  it  parts  with  a  product  which  has  only  the 
power  to  purchase  something  from  a  few  persons,  and  re¬ 
ceives  a  product  which  has  the  power  to  purchase  something 
from  all  persons  ;  it  is  not  true  to  say  that  the  book  is  worth 
more  than  the  money,  or  the  money  is  worth  more  than  the 
book,  because  they  are  just  worth  each  other,  as  is  demon¬ 
strated  by  the  sale ;  but  it  is  true  to  say  that  the  seller  of  the 
book  has  substituted  in  the  place  of  a  limited  purchasing- 
power,  of  which  he  was  proprietor,  a  general  purchasing- 
power,  of  which  he  has  now  become  proprietor ;  and  that  the 
command  of  the  money,  which  has  no  more  value  than  the 
book  had,  does  carry  along  with  it  a  superior  command  over 
purchasable  articles  generally.  In  one  word,  value  in  the 
form  of  money  is  in  a  more  available  shape  for  general  pur¬ 
chasing,  than  value  in  any  other  form.  This  is  the  exact 
expression  for  what  truth  there  is  in  the  common  vague 
remark,  that  money  is  different  from  all  other  commodities  ; 
in  point  of  value,  it  is  different  from  other  commodities  in 
just  one  respect,  namely,  while  they  have  the  power  of  buy 


318 


POLITICAL  ECONOMY. 


ing  some  sorts  of  things  from  some  persons,  it  has  the 
power,  derived  from  the  usages  of  society,  to  buy  all  sorts 
of  things  from  all  persons. 

3.  This  simple  change,  which  seems  in  itself  so  little  and 
easy  and  natural,  has  changed  in  its  results  the  face  of  the 
world !  It  makes  the  selected  commodity  seem  to  the  minds 
of  men  to  be  a  quite  different  thing  from  what  it  was  before. 
It  removes,  as  by  a  stroke  of  the  hand,  most  of  the  incon¬ 
veniences  of  Barter.  So  soon  as  a  commodity  selected  to 
be  money  by  one  people  comes  to  be  acceptable  as  such  to 
all  other  peoples,  the  advantages  of  its  use  are  vastly  mul¬ 
tiplied.  Experience  has  shown,  and  a  little  reflection  will 
explain,  how  that  there  is  no  machine  that  has  economized 
labor  like  money ;  no  instrument  which  plays  so  important 
a  part  in  production ;  no  invention,  unless  it  be  the  inven¬ 
tion  of  letters,  which  has  contributed  more  to  the  civilization 
of  mankind.  While  men  still  exchanged  in  kind,  and  knew 
no  other  mode,  the  purchasing-power  of  a  service  was  very 
much  confined  in  place,  and  would  not  be  parted  with  except 
in  view  of  the  return  service  actually  there  present,  —  the 
ultimate  parties  to  an  exchange  must  for  the  most  part  come 
together  locally,  in  order  to  effect  an  exchange ;  under  a 
money  system,  this  is  no  longer  necessary,  for  it  is  sufficient 
to  constitute  a  market  for  any  commodity  that  it  is  wanted 
anywhere  on  the  globe,  the  middle  man,  paying  the  seller  for 
it  in  money,  transports  it  thither,  and  receives  back  his 
money  with  a  profit  from  the  ultimate  consumer.  Thus 
money  brings  conveniently  buyers  and  sellers  together  com¬ 
mercially,  no  matter  how  far  separated  locally.  So,  also, 
money  generalizes  any  purchasing-power  in  point  of  time. 
The  fruit-dealer,  for  example,  must  dispose  of  his  product 
quickly,  or  it  perishes  on  his  hands,  but  by  transmuting  his 
perishable  product  into  money,  he  may  keep  its  power  of 
purchase  locked  in  this  form  as  long  as  he  lists  ;  the  money, 
indeed  is  only  good  to  purchase  with,  but  it  puts  an  interval 
at  the  pleasure  of  the  holder  between  selling  and  buying, 


MONEY. 


819 


and  with  this  generalized  power  in  his  pocket  he  may  buy 
when  he  will,  and  what  he  will,  and  where  he  will.  Money, 
too,  makes  any  purchasing-power  portable,  divisible,  and 
loanable.  A  man  may  carry  the  value  of  his  farm  in  his 
purse,  and  may  divide  it  up  for  a  thousand  different  pur¬ 
chases,  and  especially  is  able  to  loan  it  in  this  form,  to 
receive  it  back  again  with  interest  at  a  future  day. 

4.  It  is  obvious,  and  yet  important  to  notice,  that,  what¬ 
ever  made  the  commodity  selected  as  money  originally  desir¬ 
able  and  valuable,  it  has  now  become  desirable  and  valuable 
for  other  and  wider  reasons.  The  tobacco  of  Virginia, 
for  example,  in  the  early  days  of  that  colony,  became  valua¬ 
ble  at  first  on  account  of  the  demand  for  it  as  a  narcotic 
both  there  and  in  England ;  but  so  soon  as  it  was  made  a 
legal  money  in  the  colony  by  the  general  consent  already 
described,  its  value  depended  in  part  upon  another  set  of 
causes.  Demand  and  supply  still  controlled  its  value  just  as 
before,  only  parties  who  had  not  desired  it  as  a  commodity 
merely  desired  it  then  as  money.  Its  convenience  as  money 
widened  the  circle  of  those  willing  to  receive  it  and  to  render 
a  return  for  it.  It  is  true,  that  some  received  it  only  because 
they  could  pay  it  out  again  ;  but  that  made  no  difference  so 
far  as  value  is  concerned  ;  it  was  valuable  before  under  a 
certain  demand,  and  continued  valuable  under  an  additional 
demand ;  we  cannot  say  that  it  became  more  valuable  under 
that  demand,  because  we  do  not  know  how  the  combined 
demand  affected  the  supply  ;  we  may  probably  say,  that  the 
value  became  steadier ,  if  not  larger,  under  the  double  de¬ 
mand,  than  under  the  previous  single  one  ;  and  the  vital  point 
to  note  is,  that  the  value  of  money ,  previously  valuable  as  a 
commodity  only,  is  maintained  .under  the  law  of  demand  and 
supply,  just  as  all  other  values  are,  the  only  peculiarity 
being  this,  —  that,  as  a  genercdized  value  and  a  potent  social 
agent,  money  is  in  demand  by  everybody  who  has  any  tiling 
else  to  sell. 

5.  It  follows  from  this,  that  money  as  such ,  whatever  may 


320 


POLITICAL  ECONOMY. 


have  been  the  ground  of  its  original  value  as  a  commodity, 
is  always  received  in  order  to  be  parted  ivith.  It  is  not  bought, 
as  other  things  are,  for  its  own  sake ,  to  be  used  and  enjoyed, 
but  is  only  bought  to  be  sold  again.  Men  will  sell  every 
thing  to  buy  it,  with  the  sole  intent  to  sell  it  again  to  buy 
something;  and  the  odd  thing  about  it  is,  that  everybody 
buys  it  to  sell  again,  not  at  all  as  the  speculator  buys  cattle 
to  sell  them  again  at  a  higher  price,  but,  the  money  remaining 
constant  in  their  minds,  they  sell  for  it  something  they  care 
less  about  in  order  to  buy  with  it  something  the}"  care  more 
about.  Money  is,  therefore,  a  medium  in  men’s  exchanges. 
The  word  “  medium  ”  in  this  proposition,  is  to  be  taken  in 
its  etymological  and  strict  sense,  as  something  that  comes 
between  two  extremes,  and  serves  also  to  relate  them  to  each 
other.  Money  is  exchanged  for  other  things,  as  a  means, 
and  not  as  an  end ;  it  is  a  very  great  help  in  exchanging  all 
other  things,  but  is  never  exchanged  for  itself  in  an  ultimate 
transaction.  Small  boys,  indeed,  swop  cents,  but  men,  the 
miser  excepted,  who  is  under  a  deplorable  fallacy  of  the 
senses,  use  and  estimate  money  first  as  the  medium  which 
facilitates  the  real  exchanges  of  society.  What  is  really 
exchanged  is  the  wheat,  the  cloth,  the  lumber,  the  furniture, 
the  service  of  every  kind,  and  money  is  but  the  instrument 
making  those  exchanges  easy,  which  might  perhaps  go  on 
without  it,  though  with  difficulty  and  loss.  It  is  somewhat 
like  a  railroad  ticket.  Transportation  to  a  given  place  is 
what  is  really  bought  when  one  buys  a  railroad  ticket.  The 
evidence  of  the  purchase  is  the  bit  of  paper.  It  comes  in 
as  a  medium  between  the  traveller  and  the  railroad  company, 
and  while  it  facilitates  the  real  exchange,  it  also  partly  dis¬ 
guises  it.  The  resemblance  holds  in  the  main  feature,  but 
in  two  respects  the  likeness  fails  ;  money  is  not  a  specific 
ticket  for  one  purpose,  but  is  a  general  ticket  for  all  purposes 
of  purchase  ;  and  secondly,  money  really  stands  as  a  value 
in  its  own  right,  at  the  same  time  it  is  serving  as  a  medium, 
while  the  ticket  does  not.  Still,  we  are  all  desirous  to  get 


MONEY. 


321 


money,  not  for  the  sake  of  the  money,  but  for  the  sake  of 
those  things  which  the  money  will  buy.  We  part  with  it 
freely  and  constantly  for  those  things  which  we  care  more 
about.  What  we  really  care  for  is  what  the  money  will  bi^, 
is  the  command  over  all  services  and  commodities  which  the 
possession  of  money  insures.  If  we  could  give  our  own 
service  or  commodity,  whatever  it  is,  and  receive  directly  in 
return  the  service  or  commodity  which  we  want,  whatever 
it  is,  there  would  be  no  need  of  money.  This  is  generally 
inconvenient,  and  sometimes  impossible.  Therefore  we  in¬ 
troduce  a  middle  term  between  the  two  extreme  terms.  Money 
is  a  good  mean  which  helps  exchange  the  two  extremes. 

G.  We  are  getting  on  towards  a  just  conception  and  a  true 
definition  of  Money,  though  a  few  more  points  must  still  be 
noted  as  preparatory  to  that.  It  is  a  result  of  the  fact  that 
money'  serves  as  a  medium  in  exchanges,  that  the  power  of 
mouey  as  a  medium  is  multiplied  by  what  has  been  called 
rapidity  of  circulation ,  by  which  is  meant,  that,  a  brisker 
use  of  the  volume  already  in  circulation  will  reach  the  same 
end  as  an  increase  of  its  volume.  As  in  mechanics,  so  in 
money,  the  whole  power  is  the  product  of  mass  and  velocity. 
Money  is  like  any  other  tool ;  the  more  constant  its  use  the 
more  profitable  its  agency.  The  quick  movement  of  a  small 
mass  is  better  than  the  torpid  movement  of  a  large  mass, 
both  in  what  it  saves  of  expense,  and  in  what  it  presupposes 
of  the  general  conditions  of  exchange.  The  value  of  the 
money  of  any  country  is  a  small  fraction  of  the  value  of 
that  which  it  helps  to  exchange  direetty ;  and  a  very  small 
fraction  indeed  of  the  value  of  that  which  it  helps  to  ex¬ 
change  indirectly  through  credit  by  means  of  its  denomina¬ 
tions  ;  for,  as  we  shall  see  better  farther  on,  money  works 
not  only  as  a  medium  direct,  itself  exchanged  against 
other  services, — but  also  as  furnishing  those  denominations 
of  value,  like  the  dollar ,  which  are  always  used  in  bargaining, 
and  in  those  cases  of  credit  in  which  settlement  is  not  made 
by  money,  but  by  offsetting  one  piece  of  indebtedness  against 


322 


POLITICAL  ECONOMY. 


another ,  which  denominations  can  spring  onljT  from  the  use 
of  money  as  a  direct  medium.  Therefore  we  see  that  the 
hub  and  the  spokes  and  the  rim  of  the  wheel  of  exchange 
consist  of  personal  services,  credit-claims,  and  all  commodi¬ 
ties  but  money,  while,  to  borrow  the  famous  comparison  of 
Hume,  money  itself  is  but  the  grease  which  makes  the  wheel 
turn  easier.  It  would  be  a  vast  mistake  to  suppose,  as  some 
of  the  ancients  did,  that  the  grease  is  really  the  wheel. 

7.  While  money  thus  makes  easy  the  revolution  of  the 
•wheel  of  exchange,  it  follows  also  from  its  nature  as  a 
medium,  that  the  dimensions  of  the  wheel  itself  are  vastly 
greater  than  they  would  have  been  had  it  not  been  for 
money.  Money  indeed  helped  exchange  the  products  that 
already  existed  at  its  first  invention,  but  by  far  the  largest 
part  of  products  since  have  come  into  existence  largely 
through  the  agency  of  money.  We  get  quite  too  low  a  view 
of  the  function  of  this  potent  agent,  if  we  think  of  it  merely 
as  an  aid  in  circulating  products  that  would  have  existed 
whether  or  no  ;  some  products  would  have  existed  whether 
or  no,  and  money  certainly  is  of  great  use  and  convenience 
in  helping  bring  these  to  the  ultimate  consumers ;  but  this 
is  a  partial  and  wholly  inadequate  view  of  the  function  of 
money  as  a  medium  of  exchange.  The  fact  that  such  a 
medium  is  in  universal  circulation,  and  that  the  holders  of  it 
are  ready  to  exchange  it  against  any  sort  of  services  adapted 
to  gratify  their  desires,  exercises  a  kind  of  creative  power, 
and  brings  a  thousand  products  to  the  market  which  would 
otherwise  never  have  come  into  existence.  Since  money  will 
buy  any  thing,  men  are  on  the  alert  to  bring  forward  some- 
tiling  which  will  buy  money;  and  since  money  is  divisible 
into  small  pieces,  an  incredible  number  and  variety  of  small 
services  are  brought  forward  to  be  exchanged  against  these 
pieces,  which  services  we  have  no  reason  to  suppose  would 
ever  be  brought  forward  at  all,  were  it  not  for  the  strong 
attraction  of  the  money. 

8.  From  this  last  point  of  view  we  may  gain  another  con- 


MONEY. 


823 


nected  with  it,  namely,  that  money  must  he  a  very  important 
part  of  the  capital  of  the  world.  Capital  as  we  have  already 
learned,  is  any  product  outside  of  man  himself  from  whose 
use  springs  a  pecuniary  increase.  The  circulating  medium 
of  any  country  is  the  most  active,  the  most  profitable,  and 
the  most  essential  of  all  those  instruments  reserved  in  aid  ci 
further  production.  The  axe,  the  plough,  the  spindle,  the 
loom,  the  wheel,  the  engine,  are  all  instruments,  are  all  capi¬ 
tal,  and  they  each  aid  respectively  some  part  or  parts  of  the 
processes  of  production ;  but  money  is  a  form  of  capital 
which  stimulates  and  facilitates  all  the  processes  of  produc¬ 
tion  without  exception.  Just  as  we  have  seen  that  money 
is  a  form  of  value  generalized,  so  is  it  also  a  generalized  form 
of  capital,  that  is  to  say,  it  is  an  instrument  capable  of  aid¬ 
ing  all  production  in  every  department,  while  every  other 
instrument  is  capable  of  aiding  but  few  processes  in  one 
department.  Without  money,  there  could  be  no  thorough 
division  of  labor,  because  there  would  be  no  adequate  means 
of  estimating  or  rewarding  each  one’s  share  in  a  complicated 
process.  By  means  of  money,  all  services,  small  or  great, 
contributing  toward  a  common  product,  are  neatly  measured 
and  paid  for  by  some  one,  who  thereby  becomes  proprietor 
of  the  whole  product ;  or,  if  the  contributors  choose,  they 
may  wait  till  the  product  itself  is  sold,  and  then  the  money 
received  is  divisible  without  loss  to  each  contributor,  accord¬ 
ing  to  the  service  rendered.  Thus  the  influence  of  money, 
as  capital,  pervades  the  whole  field  of  exchange,  from  centre 
to  circumference,  facilitating  every  transfer,  and  stimulating 
to  new  transfers. 

9.  If  money  be,  as  it  is,  a  medium  in  exchanges  and  thus 
a  peculiar  kind  of  capital ,  the  question  is  pertinent,  How 
much  of  it  is  wanted?  Clearly,  only  so  much  as  will  serve 
the  purposes  which  such  a  medium  is  fitted  to  subserve ; 
there  should  be  enough  fairly  to  mediate  between  the  ser¬ 
vices  actually  ready  to  be  exchanged  then  and  there,  and  also 
enough  fairly  to  call  out  other  services,  proper  and  profitable 


824 


POLITICAL  ECONOMY. 


in  the  then  circumstances  of  society,  and  whose  only  obsta¬ 
cle  to  a  profitable  exchange  then  and  there,  is  the  lack  of  a 
facilitating  medium.  All  increase  of  money  beyond  this 
point,  which  the  very  nature  of  money  itself  marks  out  as 
the  boundary,  leads  to  a  diminution  in  value  of  eve  y  part 
of  it,  to  a  consequent  disturbance  of  all  existing  money  con¬ 
tracts,  to  a  universal  rise  of  prices  which  are  illusory  and 
gainless,  to  unsteadiness  and  derangement  in  all  legitimate 
business,  and  to  a  spirit  of  restless  enterprise  and  specula¬ 
tion,  which  seeks  to  draw  off  the  excess  of  money  in  untried 
and  reckless  experiments.  The  real  subjects  of  exchange 
are  mutual  efforts,  mutual  services,  and  money  is  the  instru¬ 
ment  merely  that  comes  in  between  the  real  services  exchanged 
to  facilitate  the  exchange ;  and  therefore  it,  seems  to  be  per¬ 
fectly  conclusive  on  the  point  to  remark,  that  the  quantity 
of  money  needed  in  any  country,  or  in  the  whole  world,  is 
limited  by  the  number  of  the  services  ready  to  be  exchanged, 
to  facilitate  the  exchange  of  which  is  the  good  purpose  and 
end  of  money.  The  physical  and  mental  powers  of  men, 
which  alone  give  birth  to  services,  when  considered,  as  they 
must  be  in  this  connection,  as  belonging  to  a  given  number 
of  men  at  a  given  time  and  place,  are  strictly  limited ;  and 
although  the  presence  of  money  then  and  there  is  both  a 
stimulus  and  an  aid  to  their  bringing  forward  services  of  all 
sorts  to  the  market,  there  are  obvious  limitations  both  in  their 
powers  and  in  their  circumstances  ;  and  the  quantity  of  money 
needed  among  them  is  just  that  quantity  which  will  fairly  aert 
as  a  medium  in  exchanging  the  services  which  they  are  able 
and  willing  to  render  to  each  other.  All  increase  in  the  quan¬ 
tity  of  money  beyond  that  point  would  have,  and  could  have, 
the  only  effect  of  increasing  the  nominal  prices  of  services, 
without  making  the  services  themselves  any  greater  in  num¬ 
ber  or  better  in  quality.  It  is  with  money  exactly  as  it  is 
with  an}^  other  form  of  capital,  allowance  being  made  for 
the  fact  that  money  is  a  kind  of  generalized  capital.  How 
many  ships  does  a  commercial  nation  need  to  employ?  As 


MONEY. 


325 


many  as  will  fairly  take  off  its  exports  and  bring  in  its  im¬ 
ports.  Ships  are  wanted  for  one  definite  purpose  ;  and  when 
enough  are  secured  to  answer  that  purpose,  all  additions  to 
the  number  will  lessen  the  value,  that  is,  the  purchasing- 
power  of  ships  generally.  So  of  all  instruments  whatever. 
Enough  is  as  good  as  a  feast.  Enough  is  better  than  more. 
In  regard  to  every  form  of  capital,  the  point  of  sufficiency 
is  determined  by  the  quantity  of  work  to  be  done. 

10.  It  will  help  us  now,  having  seen  some  of  the  more 
obvious  functions  of  money,  to  look  at  some  of  the  commodi¬ 
ties  that  have  served  as  money  at  different  times  and  places. 
We  have  already  in  the  first  chapter  quoted  passages  from 
Homer,  which  indicate  that  oxen  were  already  an  incipient 
money  in  the  Heroic  age.  We  cannot  certainly  infer,  when 
it  is  said  in  Genesis  that  “  Abraham  departed  out  of  Egypt 
very  rich  in  cattle  and  silver  and  gold,”  that  any  of  these 
were  any  thing  more  than  articles  of  valuable  merchandise ; 
but  it  is  certain  from  the  Latin  name  of  money,  pecunia , 
derived  from  the  word  pecus ,  meaning  cattle,  that  cattle  were 
the  money  of  the  early  Romans,  and  Pliny  says  that  Servius 
Tullius  stamped  the  first  bronze  money  with  the  image  of 
cattle ,  —  probably  indicating  by  that,  some  equivalence  in 
value  between  the  two.  Cattle  at  any  rate  have  been  used 
as  money  among  pastoral  people  very  widely  in  place  and 
time,  and  are  still  so  used  in  Africa. 

Before  Pheidon  coined  silver  money  in  Greece  (869  B.C.), 
copper  skewers  were  used  as  money  in  that  country,  of  which 
six  made  up  a  drachm  which  was  afterward  both  a  coin  and 
a  weight,  the  coin  being  worth  about  seventeen  cents  of  our 
money,  —  rather  more  than  a  Roman  denarius , —  and  the 
weight  being  about  sixty-six  grains  avoirdupois.  The  wo.*d 
drachm  is  derived  from  Spayp,a,  a  handful ,  and  the  sixth  part 
of  it,  called  an  ohol ,  from  the  Greek  word  meaning  a  spit, 
became  also  both  a  coin  and  a  weight,  which  makes  it  evi¬ 
dent  that  these  skewers  were  used  in  connection  with  roasting 
meat,  and  that  one  of  them  was  originally  both  a  unit  of 


826 


POLITICAL  ECONOMY. 


value  and  of  weight.  In  Adam  Smith’s  day,  in  certain 
districts  in  Scotland,  nails  were  still  used  as  small  money, 
which  is  a  forcible  reminder  of  these  old  Greek  skewers. 

Cowry  shells  are  used  in  the  East  Indies  and  also  in  Africa 
in  the  place  of  small  coins,  and  have  sometimes  been  im¬ 
ported  into  England  from  India  to  be  exported  in  trade  to 
the  coast  of  Africa :  these  count  in  Bengal  at  about  3,200  to 
a  rupee  (46  cents).  The  New  England  Indians  also  used 
beads  of  shells  of  periwinkles  (white),  and  of  clams  (black), 
of  which  360  made  up  a  belt  of  wampum ,  as  they  called  it, 
the  black  being  counted  worth  twice  as  much  as  the  white ; 
and  the  English  colonists  accepted  the  wampum  in  their  ex¬ 
changes  with  the  Indians,  regarding  a  string  of  white  as 
equal  to  five  shillings,  and  a  string  of  black  to  ten  shillings, 
and  afterwards  made  it  legal  tender  for  small  sums  among 
themselves,  and  even  counterfeited  it.  Bullets  also  once 
passed  in  Massachusetts  at  a  farthing  apiece,  and  were  legal 
tender  for  debts  of  less  than  one  shilling.  The  shells  had  a 
value  as  ornaments  to  the  Indians,  and  the  bullets  were 
useful  to  the  colonists,  previous  to  and  separate  from  their 
use  as  money.  The  same  will  be  noted  of  all  the  other  things 
now  to  be  mentioned. 

Cakes  of  tea  have  passed  as  mone3T  in  India,  and  elsewhere  ; 
and  it  is  said,  that  at  the  great  annual  fair  at  Novgorod  in 
Russia,  the  price  of  tea  has  first  to  be  determined  before  the 
prices  of  other  things  can  be  settled  upon,  since  that  is  a 
kind  of  standard  of  values  in  that  great  mart.  Salt  has 
been  current  money  in  Abyssinia ;  codfish  in  Iceland  and 
Newfoundland  ;  heaver-shins  in  New  Netherlands,  New  Eng¬ 
land,  and  the  western  parts  of  America ;  iron  was  money 
in  Sparta ;  leaden  money  was  known  to  the  ancients,  and  is 
still  current  in  the  Burman  empire  ;  the  earliest  coins  proper, 
were  undoubtedly  of  bronze ,  a  mixture  of  copper  and  tin, 
and  Sicilian,  Roman,  and  old  British  coins  of  tin  alone  are 
known  to  have  been  struck  ;  the  Romans  first  coined  silver 
money  in  269  B.C.,  and  gold  money  in  207  B.C.,  though 


MONEY . 


827 


gold  coins  liad  been  known  in  the  East  long  before  they 
were  stamped  in  Greece,  which  was  about  the  time  of  Alex¬ 
ander  the  Great,  say,  333  B.C.  ;  and  Herodotus  makes  the 
statement,  that  the  Lydians  of  Asia  Minor  were  the  first  to 
make  a  coinage  of  electrum ,  which  some  claim,  was  a  mixture 
of  gold  and  silver,  of  which  ancient  specimens  are  still  ex¬ 
isting.1 

We  do  not  here  try  to  give  a  full  list  of  the  things  that 
have  been  used  as  money  in  the  early  states  of  society.  In¬ 
deed,  so  great  is  the  need  of  some  such  form  of  generalized 
value,  in  order  that  exchanges  may  grow  to  any  considerable 
size,  that  there  would  be  no  ground  for  surprise  in  any  list 
however  large  and  varied.  It  may  be  held  for  certain,  how¬ 
ever,  that  nothing  has  become  money  in  primitive  times  or 
states  of  civilization,  which  was  not  previously  valuable. 
The  apparent  exceptions  to  this  do  not  seem  to  be  real  ex¬ 
ceptions.  The  Carthaginians,  had  a  kind  of  leather  money, 
which  originally  enclosed  bits  of  the  precious  metals,  and 
circulated  in  virtue  of  them,  though  they  afterwards  came 
to  circulate  as  bits  of  leather  only,  as  counters,  in  a  way  that 
will  be  explained  later.  According  to  the  Venetian  trav¬ 
eller  Polo,  China  had  in  the  13th  century,  a  money  made 
of  the  bark  of  the  mulberry  tree,  cut  into  round  pieces  and 
stamped  with  the  name  of  the  sovereign,  which  money  it 
was  death  to  counterfeit  or  to  refuse  to  take  in  any  part  of 
the  empire.  If  we  had  the  whole  history  of  this  money,  it 
surely  would  ally  itself  either  with  the  other  commodity- 
moneys  now  being  treated,  or  with  the  modern  credit-moneys 
made  legal  tender  to  be  treated  hereafter.  The  French 
writer  Montesquieu,  asserted  that  there  was  in  use  in  the 
last  century  among  the  people  of  the  coast  of  Africa,  what 
he  called  “an  ideal  money,”  “a  sign  of  value  without 
money,”  the  unit  of  which  was  called  the  macoute ,  which 
was  subdivided  also  into  ideal  tenths,  called  pieces.  This 

1  See  comments  on  this  passage  in  Herodotus  in  Macleod’s  Econ  Phil.,  vol.  i* 
p.  367. 


328 


POLITICAL  ECONOMY. 


statement  was  startling,  as  implying  a  denomination  without 
the  thing  denominated,  as  implying  a  standard  of  value 
which  had  no  basis  in  a  valuable  thing.  It  was  discovered, 
however,  afterwards,  that  this  money  of  account  had  its 
origin,  just  as  we  should  suppose  it  must  have  had,  in  an 
actual  macoute ,  namely,  a  piece  of  stuff,  a  fabric  which  they 
had  used  first  as  a  commodity-money,  and  afterwards  its 
name  as  a  money  of  account,  A  valuable  thing  may  become 
money,  and  then  its  name  may  become  a  denomination  of 
value,  and  still  later  a  bit  of  leather  or  a  bit  of  paper  may 
be  called  by  the  same  name  and  in  a  certain  sense  take 
the  place  of  the  same  thing.  All  this  will  be  clear  by 
and  by. 

As  civilization  has  advanced,  and  the  nations  have  come 
into  closer  connection  with  each  other,  experience  has  al¬ 
ready  driven  them  for  the  most  part  to  drop  the  more  tenta¬ 
tive  and  factitious  commodities  in  favor  of  the  precious 
metals  so-called  as  the  best  material  for  money.  Gold  and 
silver  coins  are  now  acceptable  in  almost  all  parts  of  the 
known  world ;  and  in  many  parts  of  the  world  nothing  else 
is  acceptable  as  money ;  experience  has  shown  in  their 
almost  universal  adoption  the  superiority  of  these  coins  over 
all  other  forms  of  money  ;  and  we  shall  soon  see  the  grounds 
of  this  manifested  superiority. 

11.  We  are  now  ready  to  look  into  the  inmost  nature  of 
money  through  an  ultimate  definition.  Money  is  a  current 
and  legal  measure  of  services.  The  word  4 1  legal”  in 
this  definition  is  not  always  to  be  pressed  to  its  utmost  sig¬ 
nification,  but  denotes  any  thing  sanctioned  by  law  or  usage 
equivalent  to  law.  The  other  words  are  to  be  taken  in  their 
full  and  technical  meaning.  It  is  believed,  that,  while  the 
definition  is  short  and  simple,  it  just  covers  the  whole  ground 
and  no  more.  It  is  not  enough  that  a  certain  commodhy  be 
legal  as  money ;  it  must  also  be  current  in  order  to  be  a  true 
money.  In  this  country  between  1862  and  1879,  gold 
coins,  though  legal  tender  all  the  time  for  all  debts,  were 


MOJVEY. 


329 


not  current  in  the  full  sense  of  that  term,  and  hence  were 
not  the  money  of  the  country.  Till  the  latter  date,  gold 
coins  were  required  to  pay  duties  with,  and  the  mterest  on 
the  public  debt,  and  were  used  to  a  small  exteut  in  a  few 
branches  of  private  business,  and  were  not  otherwise  in  the 
hands  of  the  people.  They  were  not  strictly  money,  but 
bore  a  premium  over  the  current  money  of  the  country.  To 
be  money,  then,  a  commodity  must  be  recognized  as  money 
by  law,  or  custom  as  strong  as  law,  and  also  circulate  among 
all  classes  of  the  people  as  a  medium  in  their  exchanges. 

But  mouey  becomes  a  medium  in  exchanges,  because  it 
first  becomes  a  measure  of  Services.  Some  think  that  the 
two  functions  are  separate,  and  of  equal  rank.  It  is  easy 
to  see  that  one  only  is  original,  and  that  the  other  is  derived. 
Even  Aristotle  saw  that  money  is  a  Measure,  inasmuch  as  he 
defined  property  “  any  thing  that  can  be  measured  by  money.” 
We  may  be  pretty  sure,  in  opposition  to  Professor  Jevons,1 
who  thinks  there  are  four  characteristics  of  money,  that 
money  as  such  has  but  one  'primary  characteristic  difference 
from  other  forms  of  value,  namely,  this  measure- quality, 
this  s£cmda?*d-quality,  this  publicly  recognized  function  as  a 
common  measure ,  to  which  all  other  values  are  constantly 
referred.  This  additional  attribute  put  upon  money  by  the 
action  of  society  in  law  or  custom  is  not  what  imparts  its 
value  to  money,  since  an  ounce  of  uncoined  gold  is  worth 
within  a  very  small  fraction  as  much  as  an  ounce  of  gold 
coins,  but  it  makes  the  money  a  far  more  convenient  instru¬ 
ment  to  purchase  with,  inasmuch  as  money,  having  now  the 
attribute  of  making  all  other  values  easily  commensurable 
witli  itself,  becomes  at  once  something  which  everybody  is 
willing  to  receive,  because  everybody  knows  in  general  what 
its  power  will  be  to  purchase  all  other  things.  In  other  words, 
money  becomes  a  medium  in  exchanges,  just  because  it  has 
already  become  a  measure  of  Services  in  general ;  and  there 
are  not  in  reality  two  prime  functions  of  money,  still  less 

1  Money  and  the  Mechanism  of  Exchange,  p.  13. 


3T0 


POLITICAL  ECONOMY. 


four,  but  only  one.  This  view  seems  to  simplify  the  subject 
of  Money  very  much,  and  we  may  be  sure  that  it  will  be 
found  to  be  scientifically  correct,  and  shall  have  many  means 
of  testing  its  accuracy  as  we  proceed. 

12.  The  only  thing  common  to  salable  things  is  the  fact 
that  they  all  are  salable ,  and  if  they  are  to  be  made  in  any 
way  commensurable  with  each  other,  it  must  be  by  means  of 
one  of  their  number  assumed  as  a  standard  of  comparison 
with  the  rest.  This  is  just  what  is  done  when  any  thing  is 
selected  as  money :  it  was  valuable  before,  but  now  it  has 
become  a  standard ,  with  which  other  valuable  things  may  be 
compared  in  the  single  point  of  their  value.  In  other  words, 
to  render  money  is  to  render  a  Service,  which,  from  its  very 
nature  as  money,  is  capable  of  measuring  all  other  Services 
whatsoever.  Without  some  common  measure  of  services,  it 
would  be  inconvenient,  not  to  say  impossible,  to  carry  on 
traffic  at  all.  For  instance :  A  baker  has  only  loaves  of 
bread,  and  wishes  to  buy  a  hat,  a  horse,  a  house.  How 
many  loaves  shall  he  give  for  each?  Unless  there  be  some 
common  Service,  in  the  terms  of  which  these  differing  values 
can  be  expressed,  and  by  means  of  which  they  can  be  brought 
into  numerical  relations  with  each  other,  it  would  be  an  awk¬ 
ward  piece  of  business  to  effect  even  the  three  exchanges  ; 
and  every  time  the  baker  wished  to  buy  another  article,  there 
must  be  a  rude  and  slow  calculation  from  independent  data, 
to  decide  upon  the  terms  of  the  exchange.  Let  now  some 
common  service  be  introduced,  in  the  terms  of  which  each 
of  these  values  can  express  itself,  and  the  difficulty  disap¬ 
pears  in  an  instant.  “My  loaves  are  worth  ten  cents  each,” 
says  the  baker.  “My  hat  is  worth  ten  dollars,”  says  the 
hatter.  Their  saying  so  does  not  indeed  make  it  so  ;  but  each 
has  come  to  that  approximate  conclusion  by  a  relatively  easy 
comparison  of  two  services  ;  and  if  the  loaves  bring  ten  cents 
and  the  hats  ten  dollars,  the  terms  of  their  exchange  are  one 
hundred  for  one,  and  there  is  no  need  of  parleying.  So  of 
the  rest  ;  so  of  every  thing  that  is  ever  bought  and  sold. 


MONEY. 


331 


Money  becomes  by  common  consent  a  measure  of  them  ; 
because  it  measures  them,  it  makes  the  interchange  of  them 
far  easier ;  because  it  measures  them,  it  becomes  a  medium 
between  them  ;  and  because  money  rendered  is  itself  a  Service, 
it  is  a  natural  and  universal  measure  of  all  other  Services. 

This  is  better  than  to  say,  in  common  with  many  econo¬ 
mists  that  “  money  is  a  Measure  of  Value.”  That  phrase 
is  objectionable,  because  value  is  always  relative  to  two  ser¬ 
vices  exchanged  for  each  other,  and  to  say  that  money  is  a 
measure  of  that  relation  is  neither  so  simple  nor  so  ultimate 
as  to  say  that  it  is  a  measure  of  each  of  the  services  that 
enter  into  that  relation.  The  Services  may  be  conceived  of 
and  spoken  of  separate  from  the  Value  into  which  they  merge, 
although  they  come  into  existence  solely  for  the  sake  of  that 
resultant  value  ;  so  money  may  be  conceived  of  and  spoken 
of  separate  from  the  exchanges  in  which  it  finds  its  sole 
significance ;  and  it  is  strictly  accurate  to  say,  that  monej’, 
itself  a  service,  is  a  measure  of  all  other  services,  considered 
as  constituent  elements  of  the  values  into  which  they  fall. 
We  are  not  without  hopes,  accordingly,  that  competent  econo¬ 
mists  will  concede,  that  here  is  an  improvement  in  the  nomen¬ 
clature  of  our  science.  Money  is  the  measure  of  services. 
Its  other  functions  are  the  result  of  that. 

As  all  values  are  the  result  of  a  comparison ,  it  is  not  strange 
at  all,  rather  it  is  natural  and  inevitable,  that  there  should 
arise  in  connection  with  them  some  such  comparative  measure 
as  money  is ;  and  it  is  of  some  consequence  to  notice,  con¬ 
trary  to  what  has  often  been  said,  that  the  real  measure  is 
the  money  itself ,  and  not  its  denominations,  — the  fAfogr-dollar 
and  not  the  denomination- dollar.  The  denominations  are 
used  in  bargainings  and  calculations  as  representatives  of  the 
money  itself,  and  thus  indeed  in  a  secondary  sense  serve  as 
measures ;  but  the  subtle  connection  between  the  thing  and 
its  name,  betwen  money  and  its  denominations,  and  the  differ¬ 
ences  between  the  two,  need  to  be  clearly  unfolded,  because 
most  of  the  current  fallacies  about  money  take  their  rise  just 


332 


POLITICAL  ECONOMY . 


at  this  point.  An  illustration  will  best  serve  us  here.  The 
original  measure  of  Services  in  France,  England,  and  Scot¬ 
land,  was  the  pound  weight  of  silver.  No  coin  of  that  weight 
was  ever  struck  ;  but  a  pound  of  silver  was  cut  into  240  coins 
called  pence.  Twelve  of  these  pence  were  called  a  solidus, 
or  shilling.  Thus  as  applied  to  silver,  the  symbols  lb.  and  £ 
denoted  equivalent  weights,  the  former  of  uncoined  metal, 
the  latter  of  metal  coined.  But  in  course  of  time,  more 
than  240  pence  so  called,  and  at  last  in  Elizabeth’s  reign, 
744  pence,  came  to  be  coined  out  of  a  lb.  of  silver.  Yet  all 
the  while,  240  of  these  pence  were  called  a  £.  £  and  lb., 

both  a  contraction  of  the  Latin  libra ,  were  no  longer  equiva¬ 
lent.  The  lb.  of  weight  continued  stable :  the  £  of  money 
had  dwindled  to  less  than  one-third.  Yret  the  name  pound 
continued  to  attach  to  240  pence,  although  the  pence  em¬ 
bodied  a  less  and  less  quantity  of  silver.  Each  actual  penny 
had  less  silver  in  it,  and  though  it  was  still  called  a  penny, 
the  denomination ,  though  spelled  and  sounded  as  before,  rep¬ 
resented  less  silver,  and  therefore,  less  value ,  than  before. 
The  denominations  follow  the  fortunes  of  the  coins,  whose 
names  they  are,  to  the  frequent  loss  of  the  unthinking,  who 
suppose  the  same  name  must  represent  the  same  thing.  In 
1834,  the  gold  eagle  of  the  United  States  was  reduced  in 
weight  from  270  to  258  grains  troy,  and  the  alloy  increased 
from  one  part  in  twelve,  to  one  part  in  ten.  These  changes 
took  out  more  than  six  parts  of  gold  in  every  one  hundred 
parts,  in  all  the  gold  coins  of  the  country.  Yet  all  the  coins 
bore  the  same  names  as  before.  Other  things  remaining  equal, 
the  coins  lost  about  six  per  centum  of  their  purchasing-power, 
or  in  other  words,  general  prices  rose  in  that  proportion  ;  the 
measure  became  smaller  ;  and  the  words  dollar ,  eagle ,  and  so 
on,  though  outwardly  unchanged,  varied  simultaneously  and 
equally  with  the  change  in  the  coins. 

Also,  coins  are  liable  to  change  in  their  function  as  a  meas¬ 
ure  from  changes  in  the  general  purchasing-power  of  the 
metals.  If  for  any  reason  an  ounce  of  gold  will  buy  less 


MONEY. 


383 


of  other  things  than  formerly,  the  coins  cut  from  that  gold 
will  buy  less  than  formerly,  and  this  change  in  the  measure 
is  followed  of  course  by  a  corresponding  change  in  the  denom¬ 
ination.  Other  tables  of  denominations  have  a  basis  inde¬ 
pendent  of  the  things  which  they  help  to  measure,  and  are 
not  variable  by  the  quality  or  quantity  of  those  measurable 
things.  A  French  metre,  for  example,  is  an  invariable  unit 
of  length  the  world  over ;  so  is  one  of  Troughton’s  inches; 
but  this  is  not  true  of  the  denominations  of  money  at  all. 
Pounds  sterling ,  dollars ,  marks ,  francs ,  are  denominations 
of  value ,  which  is  itself  a  variable  relation.  Such  denomi¬ 
nations,  consequently,  are  not  an  independent  standard  to 
which  values  themselves  can  be  referred,  as  lengths  are  re¬ 
ferred  to  the  metre,  but  vary  with  the  varying  purchasing- 
power  of  the  coins.  The  dollar ,  as  a  denomination,  means 
more  or  less,  just  according  as  the  dollar,  as  a  coin,  buys, 
that  is,  measures,  more  or  less.  Still,  it  is  vastly  important 
for  the  interests  of  exchange  that  the  accepted  measure  of 
Services  be  as  little  liable  to  fluctuations  as  possible,  espe¬ 
cially  in  all  cases  in  which  lapse  of  time  is  involved  before 
the  exchange  is  fully  consummated.  For  the  same  reason 
in  kind,  only  multiplied  a  thousand-fold  in  force,  that  the 
bushel  measure  should  be  of  the  same  capacity  in  sowing¬ 
time  and  in  harvest,  to  sell  by  and  buy  by,  always  a  bushel, 
no  more  and  no  less  ;  and  the  yard-stick  an  inflexible  meas¬ 
ure  of  length,  always  thirty-six  of  Troughton’s  inches,  no 
more  and  no  less ;  so,  as  far  as  it  is  possible  in  the  nature 
of  things,  ought  the  measure  of  Services,  and  hence  its 
denominations,  to  represent  year  in  and  year  out  a  uniform 
degree  of  purchasing-power. 

In  the  place  of  our  expression,  “  the  measure  of  Services,” 
and  the  foregoing  explanation  consequent  upon  its  use,  Pro¬ 
fessor  Walker1  prefers  the  phrase,  “the  common  denominator 
in  exchange,”  and  Professor  Price 2  is  fond  of  the  formula 
(and  it  is  a  good  one),  “  the  tool  of  exchange,”  and  Mr. 

1  Money,  pp.  280  et  seq.  2  Practical  Political  Economy,  1877,  p.  303. 


334 


POLITICAL  ECONOMY. 


Macleod,1  who  is  more  or  less  fortified  in  his  view  by  Bastiat 
and  Price,  strangely  insists  that  money  is  “the  representa¬ 
tive  of  Debt.”  He  says:  “  The  quantity  of  money  in  any 
country  represents  the  amount  of  Debt  which  there  would  be 
if  there  was  no  money ;  and  consequently  where  there  is  no 
debt  there  can  be  no  money.”  The  unfortunate  use  by  some 
countries  of  a  paper  money,  which  is  indeed  a  form  of  debt, 
gives  some  plausibility  to  the  notion  that  money  is  a  repre¬ 
sentative  of  debt;  and  perhaps  the  fact  that  monev  is  often 
used  to  pay  debts  previously  contracted,  and  that  iebts  are 
usually  contracted  in  the  terms  of  money,  gives  some  addi¬ 
tional  plausibility  to  this  view  ;  but  as  Mr.  Macleod  himself 
goes  on  to  say,  that  “  no  substance  possesses  so  many  advan¬ 
tages  as  a  metal  for  money,’ ’  and  that  “  all  civilized  nations 
therefore  have  agreed  to  adopt  a  metal  as  money,  and  of 
metals,  gold,  silver,  and  copper  have  been  chiefly  used,”  we 
do  not  see  how  he  can  consistently  hold  that  a  gold  dollar,  or 
gold  sovereign,  whose  value  is  in  no  sense  due  to  the  process 
of  coining,  whose  value  is  as  substantive  and  independent  as 
any  value  in  the  world  can  be,  becomes  through  coinage  and 
circulation  a  representative  of  debt.  Instead  of  saying,  as 
he  does,  “  where  there  is  no  debt  there  can  be  no  money,”  we 
may  confidently  say,  where  all  transactions  are  settled  at  once 
in  solid  money,  there  can  be  no  debt. 

13.  This  brings  us  to  the  considerations  which  determine 
what  is  the  best  money.  Historically,  coins  of  gold,  silver, 
and  copper,  have  been  proven  by  an  experience  of  about 
2,500  years  to  be  more  acceptable  to  the  people  of  the  world 
as  money  than  any  other  substances.  There  is  a  presump¬ 
tion,  accordingly,  that  these  in  proper  adjustments  with  each 
other  constitute  the  best  money.  These  have  never  been 
anywhere  of  equal  value  with  each  other :  an  ounce  of  gold 
has  always  been  more  valuable  than  an  ounce  of  silver,  and 
this  than  an  ounce  of  copper.  Moreover,  the  relative  value 
of  the  three  in  each  other  has  never  continued  permanent, 

1  Elements  of  Banking,  1876,  p.  17. 


MONEY. 


335 


even  after  the  law  has  sought  to  ascertain  and  fix  it.  In 
Asia  Minor,  where  coinage  began,  gold  was  the  standard 
with  silver  as  subsidiary  ;  in  Greece,  silver  was  long  the  sole 
standard,  till  Philip’s  victories  established  a  double  standard, 
gold  being  reckoned  as  one  to  twelve  and  a  half  of  silver; 
while  in  Rome,  copper  was  the  original  standard,  which  was 
displaced  by  silver  in  217  B.C.,  and  gold  was  legalized  by 
Caesar  as  a  co-standard  in  the  ratio  of  one  to  about  twelve, 
until  in  the  reign  of  Alexander  Severus,  gold  became  the 
sole  standard  throughout  the  Roman  Empire.  After  the 
downfall  of  that  empire,  gold  maintained  itself  for  a  time 
in  Spain  and  France,  but  silver  gradually  regained  its  lost 
place  in  Europe,  to  be  again  gradually  displaced  by  gold  as 
the  standard.  In  1717  a  double  standard  was  established 
in  Great  Britain,  gold  being  rated  to  silver  as  one  to  fifteen 
and  one-fifth,  but  in  1816  gold  was  made,  by  a  law  still  in 
force,  the  sole  standard,  the  legal  use  of  silver  being  limited 
to  forty  shillings  in  any  one  pa}’ment.  In  France,  silver  held 
its  own  as  a  co-standard  longer  and  better  than  in  any  other 
country  in  Europe.  In  1803  the  legal  relation  of  gold  to 
silver  was  fixed  at  one  to  fifteen  and  a  half,  and  so  continued 
till  1876,  when  the  right  of  private  individuals  to  have  silver 
coined  for  them  was  taken  away  in  behalf  of  the  government, 
and  only  the  five  franc  silver  pieces  continued  to  be  legal 
tender  to  all  amounts,  the  other  silver  coins  becoming  then 
only  legal  to  pay  debts  to  the  amount  of  fifty  francs.  In 
1871,  the  German  Empire  adopted  the  sole  gold  standard, 
and  limited  silver  to  the  amount  of  twenty  marks  :n  an}7  one 
forced  payment ;  but  the  old  silver  thaler  continued  to  circu¬ 
late  at  the  rate  of  three  marks  to  a  thaler.  Since  1875,  the 
Scandinavian  Union  permits  gold  alone  to  be  coined  for  pri¬ 
vate  persons,  and  limits  the  debt-paying  power  of  silver  to 
twenty  crowns.  A  franc  is  19.29,  a  mark  23.82,  and  a  crown 
26.78,  of  our  standard  cents. 

As  Belgium,  Switzerland,  Spain,  Italy,  Greece,  and  Austro- 
Hungary  in  part,  act  with  France  in  monetary  matters,  it  is 


836 


POLITICAL  ECONOMY. 


plain  that  the  tendencies  are  towards  the  adoption  of  gold 
as  the  single  standard,  and  of  silver  as  subsidiary  money 
only.  Copper,  which  was  the  only  money  in  early  Rome, 
and  is  still  the  only  legal  coinage  in  China,  has  come  in  most- 
modern  coinages  to  be  a  token-money  only,  that  is,  a  money 
circulating  in  small  sums  without  reference  to  the  value  of 
the  metal.  In  1738,  the  relative  value  of  silver  to  copper 
in  France  was  one  to  forty  ;  in  1803,  one  to  one  hundred  ;  and 
in  1852,  one  to  about  one  hundred  and  fifty.  The  French 
copper  centime  (one  gram) ,  the  English  penn}’  (9.149  grams) , 
and  the  present  United  States  copper  cent  (3.11  grams),  all 
circulate  as  money  much  above  their  value  as  metal.  Dis¬ 
missing  copper,  then,  as  only  useful  for  money  in  this  very 
subordinate  way,  and  remembering  that  gold  and  silver  stood 
in  ancient  times  in  about  the  ratio  of  one  to  twelve,  and  stands 
in  modern  times  not  far  from  the  ratio  of  one  to  sixteen,  it 
may  be  said  in  general  that  gold  and  silver  coins  make  the 
best  possible  money.  It  is  convenient  to  have  money  of  the 
two  metals  notwithstanding  the  impossibility  of  maintaining 
a  steady  legal  valuation  between  them.  For  reasons  to  be 
given  shortly,  gold  ought  to  be  exclusively  the  standard,  as 
it  has  now  come  to  be  in  Europe ;  it  ought  to  be  the  only 
legal  tender  for  large  sums ;  but  silver  coins  are  useful  for 
the  lesser  exchanges,  as  gold  ones  would  be  too  small  for  the 
purpose ;  and  there  is  no  objection  to  the  present  usage  of 
all  the  leading  nations  in  lessening  the  weight  of  the  silver 
coins  below  their  supposed  ratio  to  gold,  so  as  to  allow  a 
considerable  change  in  the  market  value  of  gold  in  silver 
without  tending  to  export  the  latter  from  the  country.  Eng¬ 
land,  France,  Germany,  and  the  United  States  have  debased 
their  smaller  silver  in  weight,  so  that  the  nominal  value  of 
these  coins  varies  from  seven  to  fifteen  per  centum  above 
their  bullion  value.  This  is  at  once  a  profit  to  the  govern¬ 
ments,  and  a  security  to  the  peoples  that  they  shall  not  lose 
their  small  change  by  export. 

(1)  The  first  and  main  reason  why  gold  and  silver  make 


MONEY. 


837 


the  best  money  is  found  in  their  comparatively  steady  value. 
Money  is  a  measure  of  all  other  valuable  services,  and  there¬ 
fore  its  own  value  must  be  as  steady  as  it  can  be  made,  and 
gold  and  silver  meet  this  test  better  than  any  thing  else. 
Money  is  not  a  representative  of  value ;  it  does  not  owe  its 
value  to  the  stamp  impressed  upon  it ;  its  value  arises  under 
the  same  conditions  as  every  other  value,  and  is  variable  by 
any  change  in  any  one  of  the  four  elements  which  alone  can 
vary  the  value  of  any  thing  ;  and  it  seems  that  nothing  more 
is  needed  in  order  to  remove  the  last  vestiges  of  the  dark 
cloud  which  has  so  long  overhung  this  subject,  than  to  fa¬ 
miliarize  ourselves  first  of  all  with  the  true  doctrine  of  value 
in  general,  and  then  hold  fast  the  truth,  exemplified  on  every 
side,  that  the  value  of  money  is  just  like  every  other  value. 
Let  us  see,  then,  why  the  value  of  gold  and  silver  money  is 
so  steady. 

(a)  On  account  of  the  comparatively  steady  demand  for 
these  metals.  Gold  and  silver  are  wanted  for  two  general 
purposes  :  first,  to  be  used  as  money,  and  second,  to  be  used 
in  the  arts ;  and  it  has  been  estimated  that  about  two-fifths 
of  the  aggregate  quantity  in  the  world  is  in  the  form  of 
money,  and  the  other  three-fifths  in  the  form  of  plate,  uten¬ 
sils,  and  ornaments.  Now,  so  far  as  the  element  of  desire 
controls  value,  the  purpose  for  which  an}’  article  is  desired 
is  a  matter  of  indifference.  The  aggregate  desire  for  it  for 
all  purposes,  accompanied  with  the  offer  of  something  with 
which  to  buy  it,  constitutes  the  demand ;  and  the  more  uni¬ 
versal  the  desire,  no  matter  for  what  purpose,  the  steadier 
the  demand,  and,  so  far  forth,  the  steadier  the  value.  It  is 
worth  noticing,  as  a  point  still  too  little  noticed,  that  it  is  not 
the  demand  for  the  precious  metals  as  coin  alone  that  deter¬ 
mines  their  general  value,  nor  the  demand  for  them  in  the 
arts,  but  the  combined  demand  for  all  purposes  ;  just  as  the 
value  of  barley  is  regulated,  partly  by  the  demand  for  it  for 
food,  and  partly  by  the  demand  for  it  for  malting  purposes. 
Hence  an  ounce  of  bullion  of  the  standard  fineness,  destinec 


838 


POLITICAL  ECONOMY. 


for  the  smelting-pot  of  the  artisan,  is  worth  within  a  very 
trifle  as  much  as  an  ounce  of  coined  money.  By  the  law  of 
the  Bank  of  England  an  ounce  of  standard  gold  is  coined 
into  £3  17s.  10Jd.,  and  the  Bank  is  obliged  to  buy  all  bullion 
and  foreign  coins  of  the  standard  fineness  offered  to  it  at 
£3  17s.  9 d.  per  ounce  —  a  difference  of  three  half-pennies. 
Now,  gold  and  silver  are  so  indispensable  in  the  form  of 
money,  so  beautiful  in  the  form  of  ornaments,  so  well 
adapted  to  serve  the  purposes  of  luxury  and  love  of  distinc¬ 
tion,  so  really  useful  in  the  arts,  that  the  demand  for  them 
is  constant  and  well-uigli  universal ;  and  if,  in  the  progress 
of  civilization,  a  less  quantity  should  be  desired  for  personal 
ornamentation  and  purposes  of  luxury,  a  greater  will  doubt¬ 
less  be  required  for  the  other  uses  ;  and  so,  as  the  demand 
in  the  past  has  been  steady,  and  perhaps  steadily  increasing, 
there  is  every  reason  to  expect  the  same  for  the  time  to  come. 
And  it  contributes  to  the  steadiness  in  value  of  the  gold  and 
silver  coin,  that  there  is  at  hand  in  the  form  of  plate  a  reser¬ 
voir  from  which  a  chance  chasm  in  the  coin  may  be  replen¬ 
ished,  or  an  extra  demand  for  it  answered. 

(5)  On  account  of  their  tolerably  uniform  cost  of  produc¬ 
tion.  Not  desires  alone,  but  efforts  as  well,  regulate  value. 
Supply  is  the  correlative  of  demand ;  and  when  to  a  steady 
demand  there  answers  a  steady  supply,  realized  under  condi¬ 
tions  of  pretty  uniform  difficulty,  there  will  be  of  course  a 
pretty  steady  value.  Nature  herself  has  indicated,  in  a  man¬ 
ner  not  to  be  mistaken,  her  intention  that  these  metals  should 
be  the  money  of  the  nations.  She  has  scattered  them  all  over 
the  earth,  and  so  scattered  them  that  the  cost  of  their  produc¬ 
tion  has  been  on  the  whole  pretty  steady  ever  since  civilization 
and  commerce  began  in  earnest.  There  have  been  but  two 
or  three  striking  changes  in  the  value  of  gold  and  silver  owing 
to  easier  and  larger  Supply  in  the  commercial  world  during 
the  last  500  years.  The  discovery  of  the  mines  of  Potosi  in 
1545,  and  the  large  influx  of  silver  into  Europe  from  those 
and  other  American  sources,  with  the  stimulus  thereby  given 


MONEY. 


3S9 


to  the  working  of  European  mines,  so  increased  the  stock  of 
silver,  that  its  value,  as  measured  in  grain  or  other  commodi¬ 
ties,  declined  in  Europe  from  1570  to  1G40  to  about  25%  of 
its  previous  purchasing-power.  Adam  Smith  thinks  (I.  187 
et  seq.)  that  silver  did  not  fall  in  value  before  1570,  nor  con¬ 
tinue  to  fall  after  1G40.  The  discovery  of  gold  deposits  on 
the  Pacific  coast  of  the  United  States  in  1848,  and  a  similar 
discovery  in  Australia  in  1851,  enlarged  the  annual  supply 
of  gold  from  $40,000,000  in  1848  (Chevalier) ,  to  an  average 
of  $136,000,000  for  the  five  years  ending  in  1859  ( Jevons )  ; 
and  the  latter  writer  estimates  the  fall  of  gold  from  1845  to 
1862  at  about  15%.  So  the  opening  of  the  fertile  silver 
mines  of  Nevada,  which  produced  in  1875  $32,000,000,  car¬ 
ried  down  decidedly  the  value  of  silver  the  world  over.  But 
with  exceptions  like  these,  and  similar  ones  are  perhaps  not 
likely  to  recur,  the  precious  metals  have  always  maintained 
and  seem  likely  to  maintain  in  the  future  a  considerable  uni¬ 
formity  of  value,  so  far  forth  as  cost  of  production  goes  to 
determine  value.  Even  the  great  changes  just  noted  in  the 
cost  of  the  metals  issued  only  gradually  in  a  rise  of  prices, 
which  many  were  able  to  foresee  and  thus  to  provide  for,  but 
by  which  many  more  were  caught  and  brought  into  distress 
and  even  pauperism.  The  two  classes  that  suffer  the  most 
under  a  fall  in  the  value  of  money  are  the  wages-receivers 
and  the  holders  of  long  annuities  and  other  similar  obliga¬ 
tions. 

(c)  On  account  of  their  quantity.  The  amount  of  gold 
and  silver  in  circulation  in  the  commercial  world,  to  say 
nothing  of  the  quantity  so  easily  brought  into  circulation 
from  the  reservoir  of  plate,  is  so  vast,  that  it  receives  the 
annual  contributions  from  the  mines  much  as  the  ocean  re¬ 
ceives  the  waters  of  the  rivers,  without  sensible  increase  of 
its  volume,  and  parts  with  the  annual  loss  by  detrition  and 
shipwreck,  as  the  sea  yields  its  waters  to  evaporation,  with¬ 
out  sensible  diminution  of  volume.  The  yearly  supply  and 
the  yearly  waste  are  small  in  comparison  with  the  accumula 


840 


POLITICAL  ECONOMY. 


tions  of  ages  ;  and  therefore  the  relation  of  the  whole  mass 
to  the  uses  of  the  world,  and  the  purchasing-power  of  any 
given  portion,  remain  comparatively  steady.  It  is  probable 
that  production  at  the  mines  might  cease  altogether  for  a  con¬ 
siderable  interval  without  very  sensibly  enhancing  throughout 
the  commercial  world  the  value  of  gold  ;  as  it  is  certain,  from 
experience,  that  a  production  very  largely  augmented  only 
gradually,  and  after  a  considerable  interval,  diminishes  its 
value.  The  mass  of  the  precious  metals  has  been  aptly  com¬ 
pared  to  the  heavy  balance-wheel  in  mechanics,  which  pre¬ 
serves  an  equable  and  working  condition  of  the  machinery 
under  any  sudden  increase  of  the  power,  and  even  when  the 
power  is  for  a  moment  withdrawn.  Mint-Director  Burchard 
estimated  the  amount  of  gold  in  this  country  on  May  1,  1881, 
to  be  $520,000,000,  of  wdiich  $256,000,000  were  in  circula¬ 
tion;  in  Great  Britain  $596,000,000,  of  which  $428,000,000 
were  in  circulation  ;  and  in  France  $927,000,000,  of  which 
$816,000,000  were  in  circulation.  The  same  authority  es¬ 
timated  the  world’s  production  of  gold  in  1880  to  be 
$107,000,000,  and  of  silver  $87,500,000  ;  the  world’s  con¬ 
sumption  in  the  arts  that  year  as  $75,000,000  of  gold,  and 
$35,000,000  of  silver;  and  this  country’s  annual  use  in  the 
arts  as  about  $11,000,000  gold  and  $6,000,000  silver.  Just 
at  this  point  a  caution  is  needful.  Because  it  is  affirmed  that 
the  great  amount  of  the  precious  metals  is  a  ground  of  their 
firm  value,  it  must  not  be  supposed  that  we  are  going  be¬ 
yond  our  general  doctrine,  and  introducing  another  element, 
namely,  quantity,  besides  the  four  elements  which,  as  we 
have  so  often  alleged,  can  alone  vary  the  value  of  any  ser¬ 
vice  ;  quantity,  in  itself,  is  not  an  element  capable  of  varying 
the  value  of  any  thing,  but  taken  in  connection  with  durabil¬ 
ity,  it  is  an  element  of  what  might,  perhaps,  with  propriety 
be  called  the  inertia  of  value,  and  tends  to  keep  the  purchas¬ 
ing-power  of  gold  and  silver  where  it  is.  Value  and  steadi¬ 
ness  of  value  are  two  distinct  ideas.  The  present  value  of 
an  ounce  of  gold  expressed  in  any  other  commodity  is  decided 


MONET. 


341 


by  four  things  alone  ;  but  other  elements  besides  these  may 
help  determine  that  that  ounce  of  gold  shall  have  ten  years 
from  now  a  purchasing-power  approximately  the  same  as 
now.  It  will  depend,  of  course,  in  the  last  analysis,  upon 
the  relation  of  the  then  demand  to  the  then  supply ;  yet  the 
vast  quantty  of  the  precious  metals  in  existence,  combined 
with  their  durability,  prevents  those  fluctuations  in  the  supply 
which  are  so  destructive  to  a  steady  value.  It  is  not  as  with 
the  fruits  and  the  grains,  whose  value  varies  perpetually  with 
the  seasons,  and  which  are  so  perishable  that  they  must  be 
sold  soon  or  never  :  gold  and  silver  are  almost  indestructible, 
and  except  by  wear  and  accident,  the  existing  mass  is  not 
liable  to  be  lessened,  and  in  so  far  as  the  annual  production 
from  the  mines  exceeds  the  yearly  waste  there  is  a  natural 
provision  made  for  the  natural  increase  of  demand,  to  supply 
the  wants  of  the  world  for  money  and  for  the  arts,  without 
much  disturbing  the  relation  of  the  demand  and  supply.  The 
quantity,  in  connection  wdth  the  durability  of  the  precious 
metals,  helps  preserve  to  them  a  tolerably  steady  value  from 
generation  to  generation. 

( d )  On  account  of  their  fluency.  Gold  and  silver  are  in 
demand  the  world  over.  Having  great  value  in  compara¬ 
tively  small  bulk,  they  are  easily  transported  from  continent 
to  continent ;  and  whenever,  from  any  cause,  they  become 
relatively  in  excess  in  any  country,  and  thus  lose  there  a 
portion  of  their  previous  purchasing-power,  there  is  an  im¬ 
mediate  motive  to  export  them  to  other  countries  where  their 
power  in  exchange  is  greater,  and  thus  the  equilibrium  is 
restored.  The  value  of  gold  and  silver  throughout  the  com¬ 
mercial  world  is  thus  kept  pretty  steady  b}T  the  facility  with 
'which  they  are  carried  from  points  where  they  are  relatively 
in  excess  to  points  where  they  are  relatively  in  deficiency. 
There  is  a  gain  in  carrying  them  to  those  countries  where 
their  power  of  purchase  is  the  greatest,  because  more  com¬ 
modities  can  be  obtained  for  them  than  at  home ;  and 
private  motives  here  coincide  with  public  welfare,  since 


342 


POLITICAL  ECONOMY. 


what  the  traders  do  in  transporting  gold  and  silver,  with 
an  eye  to  their  own  interest,  helps  maintain  at  home  and 
abroad  the  steady  value  of  these  commodities.  This  law 
Ol  the  distribution  of  the  precious  metals  by  commerce,  and 
the  equilibrium  of  value  resulting  therefrom,  is  as  natural 
and  beautiful  as  the  law  which  preserves  the  level  of  the 
ocean,  or  that  which  balances  the  bodies  of  the  planetary 
system.  This  has  come  at  length  to  be  recognized  by  the 
nations,  and  the  laws  which  used  to  forbid  by  heavy  penalties 
the  exportation  of  gold  and  silver  are  all  swept  away,  and 
these  metals  are  now  free  to  go,  and  do  actually  go,  where 
they  can  obtain  the  most  in  exchange.  It  is  absurd  to  sup 
pose  that  their  owners  would  carry  them  out  of  a  country / 
unless  they  were  worth  more  abroad  than  at  home,  and  there¬ 
fore  the  prejudice  which  exists  still  in  this  country  against 
the  exportation  of  gold  is  a  senseless  prejudice.  The  gold 
is  not  given  away ;  it  is  sold,  and  sold  for  more  than  it  will 
buy  at  home  ;  otherwise  it  would  not  be  carried  abroad. 
There  is  the  same  kind  of  gain  as  in  all  other  exchanges, 
and  this  great  incidental  advantage  in  addition,  that,  by 
means  of  free  commerce  in  the  precious  metals,  their  general 
value  is  kept  pretty  uniform  throughout  the  world,  and  a 
chance  redundanc}7  in  the  money  of  one  country  is  drawn 
off  to  supply  a  corresponding  deficiency  in  another.  It  may 
be  laid  down  as  an  axiom,  that  no  country  will  export,  for 
the  sake  of  getting  other  things,  those  things  which  are  more 
needful  for  its  own  welfare  ;  and  there  need  not  be  the  slight¬ 
est  fear  that  any  nation  which  cultivates  its  own  advantages 
under  freedom  will  ever  lack  a  sufficient  quantum  of  the  pre¬ 
cious  metals.  Under  freedom,  and  so  long  as  human  nature 
continues  what  it  is,  these  metals  will  go,  and  go  in  just  the 
right  proportions,  to  and  from  those  countries  which  produce 
and  offer  in  exchange  those  desirable  services  which  other 
countries  want.  The  greater  the  enterprise  and  skill,  the 
keener  the  development  of  all  peculiar  and  presently  availa¬ 
ble  resources,  the  more  honorable  and  free  the  commercial 


MONET. 


343 


system,  the  surer  is  any  nation,  whether  it  be  a  gold-bearing 
country  or  not,  of  securing  the  gold  and  silver  which  it  needs. 
This  is  so,  because  there  will  be  a  good  market  to  buy  in,  and 
they  who  have  gold  will  resort  thither  to  buy.  But  such  a 
nation  will  also  want  to  buy  other  things  besides  gold  and 
silver,  and  when  enough  of  the  latter  is  secured  for  money 
purposes  and  the  arts,  the  residue  wdll  be  exported,  perhaps 
to  the  ver}T  countries  from  which  it  originally  came,  in  pay¬ 
ment  for  some  products  which  those  countries  have  an  advan¬ 
tage  in  producing.  The  United  States  is  a  gold-producing 
country,  and  exported  in  the  years  1850-18G0,  both  inclusive, 
$502,789,759,  coin  and  bullion  ;  and  during  the  same  period 
imported  from  other  countries  $81,270,571,  coin  and  bullion.1 
Now,  there  was  a  double  advantage  in  that  exportation.  In 
the  first  place,  more  and  better  commodities  were  secured  to 
the  country  than  the  gold  could  have  bought  in  the  country, 
for  otherwise  it  would  not  have  been  carried  abroad  ;  and,  in 
the  second  place,  this  large  sum  carried  abroad  to  various 
countries  in  exchange,  not  onty  prevented  the  disturbing 
effect  on  our  own  moneys  of  more  than  doubling  in  ten 
years’  time  our  stock  of  gold,  thus  inevitably  depreciating 
the  whole  mass,  but  also,  by  causing  the  new  gold  to  impinge 
on  the  whole  world’s  stock  instead  of  on  the  mone}Ts  of  a 
single  nation,  the  shock  of  the  new  production  on  the  measure 
of  services,  though  perceptible,  was  reduced  and  deadened. 
The  world’s  mass  of  the  precious  metals  is  comparatively 
torpid  beneath  the  action  of  an  accretion  which  would  break 
down  by  its  weight  the  metals  of  a  single  nation.  There¬ 
fore,  the  fluency  of  gold  and  silver,  by  which  they  pass  easily 
in  commerce  to  those  places  where  their  present  value  •  in 
exchange  is  greatest,  or  to  such  countries  as  India  and 
China  which  have  shown  for  centuries  a  wonderful  power  to 
absorb  the  metals  of  the  West,  and  return  as  easily  when 
the  conditions  are  reversed,  or  when  a  larger  use  of  paper 
releases  some  portion  of  the  coin,  tends  powerfully  to  make 

1  Report  tn  the  Finances,  1803. 


344 


i 


POLITICAL  ECONOMY. 


their  general  value  uniform  throughout  the  world,  and  conse« 
quently  to  make  them  the  best  medium  of  exchange  and  the 
best  measure  of  value. 

(e)  On  account  of  this  circumstance,  that  every  general 
rise  or  fall  in  the  value  of  gold  and  silver  tends  to  check 
itself.  This  principle,  indeed,  is  applicable  to  the  value  of 
all  commodities,  but  owing  to  their  quantity  and  durability 
pre-eminently  applicable  to  the  value  of  the  precious  metals. 
The  check  is  double  in  either  direction.  First,  let  us  suppose 
that  the  purchasing-power  of  an  ounce  of  gold  or  silver  be 
rising :  then,  production  will  be  stimulated  at  all  the  mines, 
and  the  more  stimulated  as  the  rise  is  more,  and  the  new  and 
enlarged  supply  will  tend  to  check  a  farther  rise,  and,  unless 
the  permanent  demand  has  been  intensified,  to  bring  back  the 
value  to  the  old  point ;  moreover,  when  there  is  a  rise  in 
the  value  of  the  coin,  there  is  a  less  quantity  required  to  do 
the  same  amount  of  business,  and  the  demand  for  gold  which 
causes  the  rise  tends  to  be  checked  by  the  rise  itself,  because 
a  less  quantity  is  needed  for  money-use  in  consequence  of  the 
rise.  This  supposes,  of  course,  that  the  exchanges  mediated 
by  money  are  no  greater  than  before.  Thus  a  rise  of  value 
in  gold  and  silver  checks  itself  by  natural  laws  in  two  ways. 
Just  so  of  a  fall  in  their  value.  Production  is  thereby  slack¬ 
ened  at  the  mines,  and  the  lessened  supply  tends  to  enhance 
value ;  and,  if  the  same  business  is  to  be  done  as  before, 
there  is  a  stronger  demand  for  money  while  the  fall  continues, 
and  this  demand  tends  also  to  restore  the  value.  All  this  js 
in  the  interest  of  a  steady  value. 

(/)  On  account,  lastly,  of  this  circumstance,  that  a 
stronger  demand  for  money  is  met  either  by  increasing  the 
stock  of  coin,  or  by  an  increased  rapidity  of  circulation  of 
that  on  hand.  A  brisker  demand  for  money,  especiall}7  if  it 
be  temporary,  does  not  necessarily  enlarge  the  supply,  or 
alter  the  value,  but  only  hurries  round  the  existing  money. 
Oscillations  in  the  demand  are  responded  to  by  a  slower  or 
more  rapid  circulation.  This  tends  most  admirably  to  keep 


MONEY. 


345 


the  value  steady  within  certain  limits.  When  enterprises  are 
multiplying  and  exchanges  are  being  permanent^  increased 
in  number  and  variety,  then  there  must  be  a  larger  amount 
of  money,  and  this  larger  amount  is  secured  in  the  ways 
already  indicated,  with  perhaps  slight  disturbances  of  value ; 
bi  t  the  temporary  ebbs  and  flows  of  business  have  no  effect 
at  all  on  the  mass  of  money,  but  only  on  its  movement,  and 
its  value  consequently  is  not  disturbed  at  all. 

These  six  grounds  appear  to  be  satisfactory  and  sufficient 
to  account  for  the  superior  steadiness  of  the  value  of  gold 
and  silver,  so  far  as  their  value  is  determined  by  considera¬ 
tions  relating  to  the  metals  themselves.  We  now  proceed  to 
the  reasons  additional  to  this  why  gold  and  silver  constitute 
the  best  money. 

(2)  The  second  general  reason  why  gold  and  silver  make 
the  best  money  is  found  in  the  fact,  that  governments  have 
little  to  say  or  do  about  the  value ,  quantity ,  or  mode  of  circu¬ 
lation  of  such  money.  In  all  essential  respects  such  money 
regulates  itself.  These  metals  came  to  be  money  and  con¬ 
tinue  to  be  money  in  one  sense  independent  of  the  enactments 
of  any  government.  The  people  chose  them  :  they  still  choose 
them.  As  we  have  seen,  coins  do  not  owe  their  value  to  the 
stamp  of  the  government,  since  the  metal  in  them  is  worth 
within  a  trifle  as  much  before  coinage  as  after.  Coinage 
publicly  attests  the  quantity  and  quality  of  the  metal  in  the 
coin,  and  that  is  all.  Of  the  value  of  their  coins  govern¬ 
ments  say  nothing.  They  can  say  nothing.  That  depends 
on  men’s  judgments,  and  not  on  edicts  at  all.  No  law  of 
the  United  States  can  add  directly  an  appreciable  fraction 
to  the  value  of  a  gold  dollar.  The  law  makes  it  consist  of 
twenty-five  and  four-fifths  grains  troy  of  gold  nine-tenths 
fine,  the  mint  so  stamps  it,  and  thereafter  it  takes  its  own 
chance  as  to  value.  When,  however,  it  is  designed  that  both 
metals  shall  circulate  together,  it  becomes  needful  that  gov¬ 
ernment  shall  fix,  as  well  as  it  can,  not  the  general  value  of 
either,  but  the  relative  value  of  each  in  each.  But  this  value. 


346 


POLITICAL  ECONOMY . 


too,  regulates  itself  independently  of  edicts.  The  work,  no 
matter  how  well  done  at  first  by  ascertaining  the  ratio  in 
which  they  exchange  in  a  free  market,  will  require  revision 
from  time  to  time. 

Some  governments  charge  a  little  for  coining  for  their 
people,  and  some  do  not.  What  is  charged  is  called  seign¬ 
iorage.  England  coins  gold  for  all  comers  at  a  seigniorage 
of  .032%,  — practically  a  free  coinage.  France  charges  for 
gold  coinage  .216%  ;  and  by  the  law  of  1874,  the  United 
States  charge  nothing  for  coining  gold.  It  is  left  to  the  peo 
pie  to  say  how  much  money  they  will  have  coined,  and,  having 
received  it  from  the  mint,  they  are  at  liberty  to  do  just  what 
they  please  with  it,  —  they  may  hoard  it,  they  may  melt  it, 
they  may  circulate  it  at  home,  and  they  may  export  it  abroad, 
at  will.  Now,  it  is  a  great  gain  to  have  a  money  with  which 
the  government  has  nothing  to  do  except  to  mint  it,  —  a  money 
that  asks  no  favors,  needs  no  puffing,  never  deceives  anybody, 
knows  how  to  take  care  of  itself,  and  is  always  respectable 
and  everywhere  respected. 

(3)  The  third  general  reason  why  gold  and  silver  make 
the  best  money,  is  found  in  their  physical  peculiarities,  by 
which  they  are  uniform  in  quality ,  conveniently  portable , 
divisible  without  loss ,  easily  impressible ,  and  always  beauti¬ 
ful.  Pure  gold  and  silver,  no  matter  where  they  are  mined, 
are  exactly  of  the  same  quality  all  over  the  earth.  Gold  is 
gold,  and  silver  is  silver.  The  gold  mined  to-day  in  Cali¬ 
fornia  differs  in  no .  essential  respect  from  the  gold  used  by 
Solomon  in  the  construction  of  the  Temple,  and  the  silver 
out  of  the  Nevada  mines  is  the  same  thing  as  the  silver  paid 
by  Abraham  for  the  cave  of  Machpelah.  Nature  with  her 
wise  finger  has  thus  stamped  them  for  the  universal  money  ; 
and  a  universal  coinage,  that  is,  coins  of  the  same  degree  of 
fineness,  and  brought  into  easy  numerical  relations  with  each 
other  in  respect  to  weight,  and  current  everywhere  by  virtue 
of  universal  confidence  in  them,  though  bearing  the  symbols 
preferred  by  the  notion  that  mints  them,  is  one  of  the 


MONEY. 


347 


dreams  and  hopes  of  economists,  that  will  be  realized  in 
some 

“  Fair  future  day, 

Wliicli  Fate  shall  brightly  gild.” 

Gold  and  silver  are  sufficiently  portable  for  all  the  purposes 
of  modern  money.  Their  weight  is  little  relatively  to  their 
value.  A  thousand  dollars  in  gold  are  not  indeed  carried  so 
easily  as  a  bill  of  exchange  or  a  bank-note ;  and  expedients 
are  easily  adopted,  and  have  been  in  use  since  the  days  of 
the  Homans,  by  which  the  transfer  in  place  of  large  masses 
of  coin  is  for  the  most  part  obviated  ;  and  these  expedients 
will  all  be  explained  in  the  following  chapter  on  Credit.  For 
the  ordinary  exchanges  for  which  they  are  designed,  gold 
and  silver  coins  are  portable  enough.  The  writer  has  car¬ 
ried  across  the  ocean,  incased  in  a  glove  finger  and  borne  in 
a  vest-pocket,  a  troy  pound  of  English  sovereigns,  worth 
about  8230,  scarcely  conscious  of  their  weight,  though  easily 
reassured  of  their  presence  by  a  touch  of  the  hand.  The 
experience  of  those  countries,  like  France  and  Germany,  in 
which  the  money  has  been  and  is  still  mostly  metallic,  has 
not  pronounced  it  onerous  on  account  of  its  weight ;  and,  at 
any  rate,  it  is  better  to  accept  all  the  other  immense  advan¬ 
tages  of  gold  and  silver  money,  together  with  some  incon¬ 
venience  as  to  weight,  if  one  chooses  to  insist  on  that,  than 
to  adopt  substitutes  every  way  inferior  as  money,  except 
that  they  are  lighter  in  our  purses.  They  are  unfortunately 
“  lighter  ”  in  other  respects  also. 

Moreover,  gold  and  silver  differ  from  jewels  and  most  other 
precious  things,  in  that  masses  of  them  are  divisible ,  without 
any  loss  of  value,  into  pieces  of  any  required  size.  The 
aggregate  of  pieces  is  worth  as  much  as  the  mass,  and  the 
mass  as  much  as  the  pieces.  This  is  a  great  advantage  in 
money,  because  for  the  convenience  of  business,  a  consider¬ 
able  variety  of  coins  is  required,  and  the  proper  proportion 
of  each  kind  is  a  matter  of  trial,  and  if  any  kind  be  minted 
in  excess  of  the  demand  nothing  more  is  required  than  to 


818 


POLITICAL  ECONOMY. 


remint  in  other  denominations,  and  the  whole  value  is  thus 
saved  to  the  country  in  the  most  convenient  form. 

Then,  gold  and  silver  are  easily  impressible  by  any  stamp 
which  the  government  chooses  to  put  upon  them.  Indeed  in 
their  natural  state  they  are  too  soft  to  retain  long  the  impress 
of  the  die.  Accordingly,  for  coinage  purposes  they  are  al¬ 
loyed  with  another  metal,  chiefly  copper,  since  by  a  chemical 
law,  whenever  two  metals  are  mixed  together,  the  compound 
is  harder  than  either  of  the  two  ingredients.  Most  of  the 
nations  now  use  in  their  gold  and  silver  coins,  one-tenth 
alloy,  but  England  still  adheres  to  her  ancient  rule  of  one- 
twelfth  only.  So  compounded,  coins  receive  readily  and 
retain  for  a  long  time  with  sharp  distinctness  the  legend  and 
other  devices  chosen  for  them  to  bear.  In  monarchical  coun¬ 
tries,  the  head  of  the  reigning  sovereign  is  usually  stamped 
upon  the  coins ;  in  all  countries,  national  emblems  of  some 
sort ;  quite  recently,  some  of  our  coins  have  been  made  to 
bear  the  appropriate  legend  “In  God  we  trust;  ”  so  that, 
patriotic  and  even  religious  associations  are  connected  with 
the  current  money.  Although  the  alloy  hardens  the  coins, 
yet  after  long  usage  they  will  lose  part  of  their  weight  by 
abrasion,  and  governments  usually  indicate  a  short  weight, 
after  coming  to  which  the  coins  are  no  longer  legal  tender. 
Thus  an  English  sovereign  weighs  five  pennyweights  3^|-J 
grains,  containing  grains  of  fine  gold,  and  when  it 

falls  below  five  pennyweights  two  and  three-quarters  grains, 
it  loses  its  legal  tender  character.  Still,  the  abrasion  is  not 
very  considerable  in  any  one  year.  The  Director  of  the 
United  States  Mint,  in  his  Report  for  18G2,  gave  the  results 
of  some  careful  experiments  made  at  the  Mint  to  ascertain 
the  yearly  loss  of  coins  by  the  ordinary  wear  and  tear  of 
circulation.  The  result  of  actual  weighings  and  cautious 
estimates  was,  that  the  average  yearly  waste  by  wear  on  all 
the  coins  then  in  use  in  this  country  did  not  exceed  one  part 
in  2,400.  The  cost,  therefore,  of  maintaining  a  metallic 
circulation  is  by  no  means  so  great  a£  it  has  been  usually 


MONEY. 


349 


represented.  An  instrument  in  constant  use  that  requires 
only  2^60  its  value  for  its  yearly  repair,  and  performs 

well  the  most  delicate  and  important  functions,  is  a  cheap 
and  durable  instrument. 

Lastly,  gold  and  silver,  when  coined  into  money,  are  ob¬ 
jects  of  great  beauty.  This  is  no  slight  recommendation  of 
these  metals  for  the  money  of  the  world.  They  are  clean. 
They  are  beautiful.  People  like  to  see  them,  and  to  handle 
them,  and  to  have  them.  Their  perfectly  circular  form,  the 
device  covering  the  whole  piece,  the  milled  and  fluted  edges, 
the  patriotic  emblem  whatever  it  be,  the  religious  or  other 
legend,  and  their  bright  color,  are  all  elements  in  their  beauty. 
The  educating  power  over  the  young  of  a  good  coinage  well 
kept  up,  aesthetically,  historically,  and  commercially,  is  a 
matter  of  consequence  to  any  country.  A  whole  people 
handling  constantly  such  money  cannot  fail  to  receive  a 
wholesome  development  thereby.  The  new  German  coinage, 
in  contrast  with  the  old  money  of  the  German  States,  fur¬ 
nishes  an  illustration  of  all  this.  The  new  German  coins 
from  highest  to  lowest  are  very  beautiful,  and  have  already 
tended,  and  will  tend  more  and  more,  to  a  true  German 
nationality. 

From  these  three  main  reasons  we  conclude  that  gold  and 
silver  make  the  best  money. 

14.  Silver  is  much  inferior  to  gold  as  a  metal  for  money, 
for  the  reason  that  it  is  less  steady  in  value;  and  its  value  is 
less  stead}7  because  it  is  subject  to  greater  changes  in  its  Sup¬ 
ply,  and  greater  variations  in  its  Demand.  The  annual  silver 
product  of  the  world  doubled  in  the  third  quarter  of  this 
century,  rising  from  an  average  of  $40,000,000,  1851-G1, 
to  $80,000,000  in  1875.  In  187G,  Nevada  alone  yielded 
$40,000,000,  as  much  as  the  world  yielded  twenty  years  before. 
Then,  too,  public  opinion  does  not  hold  to  silver  as  it  does  to 
gold  for  a  standard  of  values.  The  action  of  England  in 
181G,  of  the  United  States  in  1853,  of  Germany  in  1871, 
of  Scandinavia  in  1874,  and  of  the  Latin  Union  in  1876,  iv 


350 


POLITICAL  ECONOMY . 


legally  making  gold  the  sole  standard  of  services  and  silver 
subsidiary  to  that ,  of  course  affected  more  or  less  the  demand 
for  silver,  and  thus  varied  its  value.  The  average  price  of 
silver  in  gold  from  1833  to  1874  in  the  London  market  was 
just  about  60  pence  per  ounce,  never  falling  below  58  and 
never  rising  to  63.  At  60  pence  per  ounce  (444  grains  pure 
silver,  standard  English  silver  being  .925  fine)  the  ratio  of 
gold  to  silver  is  1  to  15.716.  Between  May,  1875,  and  July, 
1876,  the  price  in  that  market  (which  is  the  bullion  market  of 
the  world)  dropped  to  47  pence  per  ounce,  a  fall  of  21%, 
and  a  ratio  of  gold  to  silver  of  1  to  20.  The  price  gradu¬ 
ally  rose  again  to  about  53  pence  per  ounce,  and  remained 
there  till  1882.  Such  fluctuations  as  these,  however  unusual 
and  unlikely  to  recur,  unfit  silver  to  be  the  standard  in  a 
great  commercial  country,  and  equally  unfit  it  to  be  a  co¬ 
standard  with  gold,  but  do  not  interfere  with  its  usefulness 
in  subsidiary  coins ;  and  consequently,  the  action  of  the 
United  States  in  1877,  in  trying  again  to  make  silver  a  co¬ 
standard  with  gold,  seems  to  have  been  unwise,  and  is  likely 
to  manifest  itself  as  unwise  sooner  or  later. 

15.  A  money  inferior  in  general  value  will ,  so  long  as  it  cir¬ 
culates  at  all ,  drive  a  superior  money  out  of  the  circulation. 
The  only  exception  to  this  is  found  in  token-coins,  and  in 
subsidiary  silver  so  far  as  that  has  the  fo&en-quality,  that  is, 
so  far  as  its  nominal  is  above  its  bullion  value.  These  are 
onty  designed  for  the  smaller  exchanges,  and  are  legal  tender 
only  for  small  sums,  and  are  acceptable  only  on  local  and 
conventional  grounds.  The  exception  aside,  the  principle  is 
a  fundamental  law  of  finance  and  has  been  illustrated  over 
and  over  again  in  every  age  and  nation.  It  is  as  solid  as 
the  substance  of  truth  can  make  it,  though  it  looks  at  first 
sight  like  a  paradox.  We  naturally  think  that  what  is  ex¬ 
cellent  tends  rather  to  displace  what  is  inferior,  but  with 
money  the  exact  reverse  is  the  law,  and  the  perfect  coin  of 
full  weight,  instead  of  driving  out  the  light  and  the  debased 
pieces,  is  always  itself  driven  out  of  the  circulation  by  them. 


MONEY. 


851 


The  reason  is  obvious  from  the  nature  of  money.  Money 
is  merely  an  instrument  of  exchange,  and  nobody  wants  it 
except  to  buy  with,  and  so  long  as  the  government  and  the 
community  treat  light  coin  and  full  coin  as  of  equal  value, 
receiving  them  indifferently  in  payment  of  debts  and  of 
taxes,  it  is  clear  that  nobody  will  give  in  payment  of  debts 
and  of  taxes  that  which  is  really  worth  more  so  long  as  that 
which  is  really  worth  less  will  go  just  as  far.  The  inferior 
pieces  will  abide  in  a  market  where  they  will  fetch  just  as 
much  as  the  superior  pieces,  while  the  superior  pieces  will 
take  on  a  form  or  migrate  to  a  place  in  which  some  advan¬ 
tage  can  be  gained  from  their  superiority.  Thrown  into  the 
crimible,  or  exported  in  commerce,  this  superiority  immedi¬ 
ately  manifests  itself ;  and  therefore  into  the  crucible  or  into 
the  channels  of  foreign  trade  it  might  be  confidently  pre¬ 
dicted  beforehand  that  such  money  would  be  thrown,  and 
all  experience  testifies  with  one  voice  that  exactly  those  are 
the  destinations  of  such  money. 

Aristophanes,  the  Greek  comic  poet,  in  the  5th  century 
before  Christ,  seems  to  have  been  the  first  writer  who  noticed 
that  good  coins  of  full  weight  are  apt  to  be  crowded  out 
of  the  circulation  by  the  lighter  and  poorer  pieces,  and  he, 
mistaking  the  cause  of  this,  satirized  his  countrymen  unmer¬ 
cifully  for  preferring  bad  coins  to  good,  and  demagogues, 
like  Cleon,  to  honorable  citizens  for  rulers.  The  following 
are  the  verses  :  — 

“  Oftentimes  have  we  reflected  on  a  similar  abuse, 

In  the  choice  of  men  for  office,  and  of  coins  for  common  use; 

Fcr  your  old  and  standard  pieces,  valued  and  approved  and  tried, 
Here  among  the  Grecian  nations,  and  in  all  the  world  beside, 
Eecognized  in  every  realm  for  trusty  stamp  and  pure  assay, 

Are  rejected  and  abandoned  for  the  trash  of  yesterday; 

For  a  vile,  adulterate  issue,  drossy,  counterfeit,  and  base, 

Which  the  traffic  of  the  city  passes  current  in  their  place! 

And  the  men  that  stood  for  office,  noted  for  acknowledged  worth, 
And  for  manly  deeds  of  honor,  and  for  honorable  birth; 

Trained  in  exercise  and  art,  in  sacred  dances  and  in  song, 

All  are  ousted  and  supplanted  by  a  base,  ignoble  throng; 


352 


POLITICAL  ECONOMY. 


Paltry  stamp  and  vulgar  metal  raise  them  to  command  and  place, 
Brazen  counterfeit  pretenders,  scoundrels  of  a  scoundrel  race, 

Whom  the  state  in  former  ages  scarce  would  have  allowed  to  stand 
At  the  sacrifice  of  outcasts,  as  the  scapegoats  of  the  land.”  1 

Sir  Thomas  Gresham,  financier  of  Queen  Elizabeth  and 
founder  of  the  Royal  Exchange  and  of  Gresham  College  in 
London,  was  the  first  to  explain  fully  what  Aristophanes  had 
noticed,  and  what  may  hence  properly  be  called  Gresham’s 
law.  Let  us  give  two  or  three  illustrations  of  it.  The  city 
of  Amsterdam  founded  its  famous  bank  in  1609,  because 
the  clipped  and  worn  foreign  coins  then  circulating  in  that 
great  mart  of  trade,  drove  out  completely  the  good  money 
which  the  mint  of  the  city  constantly  poured  in.  This  was 
a  bank  of  deposit  only  ;  it  took  in  all  the  old  coins  at  their 
bullion  value,  and  had  them  reminted  at  full  weight ;  it  gave 
the  depositors  credit  on  its  books  in  the  terms  of  the  new 
money  for  all  they  brought  in  ;  it  adjusted  accounts  between 
merchants  and  others  by  mere  transfers  on  its  books ;  and 
the  city  required  all  debts  due  in  Amsterdam  to  be  paid  in 
the  new  bank-money,  and  thus  took  away  all  uncertainty 
from  bills  of  exchange  drawn  on  Amsterdam,  which  were 
previously  liable  to  be  paid  in  the  worn  coin,  and  were  there¬ 
fore  sometimes  at  as  much  as  10  %  discount  in  other  cities  ; 
this  brought  these  bills  at  once  up  to  par  and  kept  them 
there,  and  thus  made  it  for  the  interest  and  convenience  of 
every  business  man  in  Amsterdam  to  have  these  simple  deal¬ 
ings  with  the  bank,  which  in  turn  enjoyed  unlimited  credit 
in  the  commercial  world  for  nearly  two  hundred  years. 

The  great  English  recoinage  of  1696  was  compelled  by 
similar  causes.  Macaulay  describes  it  graphically  in  his 
twenty-first  chapter.  The  old  silver  coins  were  stamped  by 
the  hammer  ;  few  of  them  were  perfectly  circular  ;  the  edges 
were  neither  milled  nor  fluted ;  the  superscription  was  not 
so  near  the  edge  as  that  the  letters  were  impaired  by  a  little 
clipping ;  it  was  easy  to  pare  off  a  pennyworth  or  two,  and 


1  Translated  by  Sir  Bartle  Frere. 


MONEY. 


353 


then  pass  the  coins  along ;  it  was  profitable  to  do  it,  and  in 
vain  that  Elizabeth  enacted  that  the  clipper  must  suffer  the 
penalties  of  high  treason  ;  nearly  all  the  coin  of  the  realm 
became  mutilated,  and  about  16G0  a  new  process  of  coinage 
was  brought  in.  A  mill  worked  by  horses  fabricated  the 
new  coins  on  better  principles.  They  were  exactly  round, 
and  the  edges  were  inscribed  with  a  legend,  and  they  wrere 
all  of  just  and  equal  weight.  They  were  thrown  out  to  pass 
current  with  the  hammered  money,  and  it  seems  to  have 
been  expected  that  they  would  soon  come  to  displace  it.  But 
they  did  not*  Both  were  received  at  first  without  distinction 
by  the  individual  traders  and  by'  the  public  tax-gatherers. 
But  the  milled  money  soon  came  to  be  scarce,  and  the  old 
money  grew  constantly  worse.  The  lighter  the  old  coins 
became,  the  scarcer  became  the  new  ones  ;  for  who  would 
pay  two  ounces  of  silver  when  one  ounce  was  legal  tender? 
The  new  money  was  melted,  was  exported,  was  hoarded, 
but  circulate  it  would  not.  At  length  the  lightest  pieces 
began  to  be  refused  by  some  people,  and  other  people  de¬ 
manded  that  their  silver  should  be  paid  to  them  by  weight 
and  not  by  tale,  and  there  was  wrangling  over  every  counter, 
and  a  dispute  at  every  settlement,  aud  the  coin  was  really 
so  diverse  in  its  value  that  there  was  no  longer  any  measure 
of  value  in  the  kingdom  ;  business  was  in  utmost  coufusion, 
society  was  by  the  ears,  poor  people  were  unmercifully 
fleeced,  and  shrewd  ones  grew  enormously  rich ;  and  the 
Jacobites  secretly  exulted  in  the  hope  of  being  able  to  avail 
themselves  of  the  prevailing  discontent  to  overthrow  the 
scarcely  established  revolutionary  government  of  William  and 
Mary ;  when,  by  the  joint  counsels  of  two  such  philosophers 
as  Locke  and  Newton,  and  two  such  statesmen  as  Somers 
and  Montague,  the  government  took  the  bold  resolution  of 
recoining  all  the  silver  of  the  kingdom.  An  early  day  was 
fixed  by  Parliament,  after  which  no  clipped  money  could 
pass  except  in  payments  to  government,  and  a  later  day 
after  which  it  could  not  pass  at  all. 


354 


POL  I  TIC  A  L  ECONOMY. 


16.  Some  steps  have  already  been  taken  towards  unifying 
the  coinage  of  the  leading  commercial  nations.  Since  alloy 
is  of  no  consequence  in  coins  so  far  as  value  is  concerned, 
which  depends  wholly  on  the  weight  and  fineness  of  the  pre¬ 
cious  metal,  if  the  nations  could  agree  as  to  the  fineness  of 
the  gold  in  their  unit-coins,  and  then  bring  the  weights  of 
these  into  easy  numerical  relations  with  each  other,  the  coins 
of  each  nation  might  bear  the  names  and  emblems  preferred 
by  each,  but  there  would  be  practically  a  universal  coinage, 
and  the  pieces  respectively  might  be  legal  tender  in  each 
nation.  Except  England,  the  leading  nations  have  already 
adopted  the  standard  nine- tenths  fine  for  their  gold  coins. 
The  French  have  taken  much  pains  to  make  their  franc- 
system  universal,  and  have  had  some  success  as  towards  that 
end.  They  want  their  five-franc  gold  piece,  weighing  1,612.9 
milligrams,  to  be  the  international  unit ;  and  have  persuaded 
Belgium,  Switzerland,  Italy,  Spain,  Greece,  Roumania,  and 
Austro-IIungary  in  part,  to  adopt  it.  The  last  mentioned 
began  in  1870  to  coin  gold  pieces  of  eight  and  four  florins, 
the  same  in  weight  and  fineness  a&  the  French  twenty  and 
ten  franc  pieces  respectively  ;  and  uecreed  in  1873,  that 
foreign  gold  pieces  of  the  French  system  be  accepted  in 
Austro-IIungary  in  the  ratio  of  two  and  one-half  francs  to 
the  florin.  If  this  system  is  to  become  international,  Brit¬ 
ish,  German,  and  American  gold  will  have  to  be  recoined, 
and  the  British  standard  of  eleven-twelfths  fine  be  changed 
to  nine-tenths  fine.  If  our  gold  dollar  were  lowered  3.5  %, 
and  the  British  sovereign  lowered  .88  <%,  very  simple  ratios 
would  obtain  between  the  moneys  of  the  United  States,  Great 
Britain,  and  the  Latin-Union  countries.  Five  dollars  would 
equal  one  pound  and  each  would  equal  twenty-five  francs ; 
also,  of  course,  one  dollar  would  equal  five  francs  and  four 
shillings  respectively.  If  the  United  States  should  make  its 
gold  dollar  the  equal  of  five  French  francs,  it  would  there¬ 
after  circulate  wherever  the  French  napoleon  now  circulates 
(virtually  every  where) ,  and  tend  powerfully  to  make  the 


MONET. 


855 


dollar  the  future  universal  denomination  of  value,  as  it  is 
already  in  many  countries  both  in  Occideut  and  Orient.1 
The  objections  to  this  general  plan,  are  (1)  the  ugly  fraction 
in  the  metrical  unit  of  weight;  (2)  England’s  preference  of 
her  old  standard  ;  (3)  the  new,  independent  coinage  of  Ger¬ 
many  ;  (4)  such  a  body  of  gold  would  have  to  be  recoined  ; 
and  (5)  the  system  is  not  decimal  throughout,  though  the 
multiples  of  the  unit  would  be  divisible  by  five,  the  napoleon 
of  twenty  francs  not  being  decimally  related  to  the  franc. 

Mr.  E.  B.  Elliott’s  plan  is  similar,  simpler,  and  more 
metrical :  Let  Great  Britain  coin  t9q  fine  and  increase  the 
weight  of  the  sovereign  from  7.3223  — to  7.5  grams  fine,  let 
the  French  increase  the  weight  of  the  napoleon  from  5.80G4  -J- 
to  G  grams  fine,  and  let  the  Uhited  States  reduce  the  weight 
of  the  dollar  from  1.5046-)-  to  1.5  grams  fine,  and  then 
their  weights,  both  fine  and  standard,  would  all  be  strictly 
metrical  and  bear  simple  relations  to  each  other.  The 
following  equivalents  would  obtain,  namely,  4  pounds  =  20 
dollars  =  100  francs.  Each  of  these  would  weigh  30  grams 
fine  gold,  or  33^  grams  standard  gold.  Also,  1  dollar  =  5 
francs  =  50  pence,  each  weighing  1J  grams  fine,  or  1| 
grams  standard.  Also  1  pound  =  5  dollars,  each  7J  grams 
fine,  8J  grams  standard. 

The  new  German  Empire  adopted  bodily  the  metric  sys¬ 
tem  from  France,  but  in  developing  about  the  same  time  its 
new  coinage,  it  avoided  the  French  unit  of  money,  and  thus 
probably  postponed  the  exact  unification  of  the  money  of 
the  commercial  world.  The  German  unit  is  the  mark ,  and 
the  principal  coin  is  the  20-mark  piece,  which  contains 
7.1G8459  grams  fine  gold;  the  English  sovereign  contains 
7.3224  grams  fine,  and  the  French  2 5- franc  piece  is  to  con¬ 
tain  7.2581  grams  fine  ;  and  if  these  three  could  be  brought 
together,  and  the  American  dollar  be  made  equal  to  5  francs, 
an  international  coinage  would  be  substantially  secured. 
The.  German  mark  is  subdivided  into  100  pfennig  e,  as  the 

1  Compax-e  Jevons’s  Mechanism  of  Exchange,  p.  179. 


356 


POLITICAL  ECONOMY. 


French  franc  into  100  centimes.  An  English  shilling  equals 
24.33  of  our  standard  cents,  and  two  shillings  English  are 
very  nearly  the  same  as  the  new  Austrian  florin. 

17.  We  have  defined  “Money”  as  a  current  and  legal 
measure  of  Services.  So  far,  we  have  treated  only  of  coin¬ 
money  ;  as  this  is  the  only  money  that  stands  in  its  own 
right  as  a  commodity,  and  the  only  money  that  can  give 
birth  to  the  denominates  of  value,  such  as  dollars ,  marks , 
and  francs.  What  is  a  dollar?  A  dollar  is  twenty-five  and 
four-fifths  grains  of  a  metal  compound  coined,  of  which 
nine  parts  are  pure  gold,  and  one  part  a  hardening  alloy. 
It  is  a  definite  quantity  of  a  definite  thing.  It  is  a  visible, 
tangible  commodity.  Government  is  competent,  if  it  pleases, 
to  alter  the  quantity  of  gold  that  shall  make  a  dollar,  though 
the  people  will  quickly  readjust  the  prices  of  services  to  a 
changed  dollar ;  it  is  competent  even  to  make  a  dollar  out 
of  silver,  though  it  is  not  competent  to  cause  both  dollars 
to  circulate  as  such  at  the  same  time  ;  but  it  is  not  practiccdly 
competent  to  make  a  dollar  out  of  any  thing  else  than  gold  or 
silver.  From  the  way  in  which  money  originates,  the  mate¬ 
rial  of  money  must  be  a  valuable  commodit}T ;  and  no  civil¬ 
ized  people  now  tolerate  any  other  commodity  in  this  relation 
than  gold  or  silver.  Such  a  commodity,  becoming  in  the 
way  already  explained  an  actual  medium  passing  from  hand 
to  hand  in  exchanges,  impresses  its  name  on  the  minds  of 
men  as  an  ideal  measure  of  services,  which  measure  they 
can  use,  and  do  constantly  use,  without  handling  at  the  time 
the  commodity  itself.  But  these  ideal-dollars,  these  denomi- 
nation-dollars,  need  to  be  kept  in  check  by  a  constant 
recuirence  to  actual,  palpable  thing-dollars.  The  denomina¬ 
tion  only  comes  into  existence  in  connection  with  the  use  of 
the  thing,  cannot  possibly  exist  independently  of  it,  and 
needs  constantly  to  be  reduced  to  it  (as  it  were  by  actual 
contact)  in  order  to  be  useful  as  a  measure.  Just  as  men 
talk  about  inches,  and  calculate  by  inches,  in  thousands  of 
cases  in  which  no  actual  inch  is  used  as  a  measure,  and,  in 


MONEY. 


357 


every  case  of  doubt,  dispute,  or  difficulty,  have  recourse 
to  the  actual  iuch,  aud  thus  the  ideal  inch  is  kept  steady  iu 
the  minds  of  men  by  frequent  reference  to  the  outward 
standard ;  so  the  mental  measure  of  services,  which  men 
insensibly  acquire  from  the  use  of  the  objective  measure, 
needs  to  be  kept  true  by  actual  and  frequent  contact  with 
that  measure. 

But  besides  the  thing-dollar  and  its  denomination,  which 
always  go  together  like  a  man  and  his  shadow,  there  is  one 
other  kind  of  money, — the  promise-dollar.  We  must  now 
attend  to  this.  What  is  a  dollar  bill?  How  does  it  read? 
It  is  a  promise  of  the  issuer  to  pay  to  bearer  one  dollar ,  that 
is,  this  definite  quantity  of  a  precious  metal.  There  is  no 
mystery  here.  A  dollar  is  a  tangible  commodity.  A  dollar 
bill  is  a  promise  to  give  this  commodity  to  bearer.  The 
difference  between  them  is  the  same  iu  kind  as  that  between 
a  bushel  of  corn  and  a  man’s  promise  to  his  poor  neighbor 
to  give  him  a  bushel.  It  depends  on  the  man ,  on  his  ability 
and  character,  how  much  this  promise  is  worth ;  and  so  it 
depends  on  the  issuer ,  on  his  ability  and  character,  how 
much  the  promise-dollar  is  worth.  The  issuer  may  be  of 
such  standing  as  to  be  able  to  secure  for  his  promises  that 
they  become  “a  current  and  legal  measure  of  services;” 
if  so,  they  become  money  under  the  definition.  There  is, 
then,  such  a  thiug  as  paper  money,  although  many  high 
authorities  are  reluctant  to  concede  that  any  mere  promises 
can  be  money  at  all.  For  ourselves,  we  cannot  refuse  the 
courtesy  of  the  term  “money”  to  paper  promises,  which 
our  country,  however  unwisely,  makes  a  legal-tender  for 
debts.  The  essential  characteristic  of  money  is  its  posses¬ 
sion  of  a  generalized  purchasing-power.  Whatever  circu¬ 
lates  among  all  classes  of  the  people  as  a  medium  in  their 
exchanges  is  money  under  the  definition.  Still,  there  are 
but  two  kinds  of  it.  Money  is  always  either  an  intermediate 
and  equivalent  merchandise  (coin)  or  promises  to  pay  this 
(paper  money) . 


358 


POLITICAL  ECONOMY. 


But  not  all  promises  to  pay  coin  are  money,  because  not 
all  have  the  c  ‘  current  and  legal  ’  ’  qualities  which  alone  make 
any  thing  money.  Paper  money  is  always  credit ;  but  not 
all  credits  are  money.  Ordinary  notes  of  hand,  cheques, 
drafts,  bills  of  exchange,  and  so  on,  are  not  money  under 
the  definition.  This  is  a  distinction  recognized  in  common 
language,  and  science  has  no  motive  to  disturb  it.  The  peo¬ 
ple  know  the  difference  between  paper  money  and  other 
credits.  One  man  may  receive  and  pay  out  cheques  in  ordi¬ 
nary  exchanges,  but  all  his  neighbors  do  not,  and  they  know 
the  difference :  cheques  are  not  money.  The  people  know 
too,  what  is  the  weak  point  in  paper  money.  It  is  credit- 
money.  It  may  be  more  convenient  than  coin  money  ;  its 
value,  that  is  to  say,  its  purchasing-power,  may  be  equal  to 
that  of  coin  money  ;  it  may  even  in  some  circumstances  bear 
a  premium  over  coin  money ;  but  all  this  does  not  alter  the 
fact  that  there  is  in  it  an  unlucky  element,  an  unstable 
element,  an  element  which,  as  men  are,  is  liable  to  some 
suspicion,  the  element,  namely,  of  a  present  promise  to  be 
fulfilled  in  future.  Paper  money  walks  by  faith,  and  not  by 
sight.  It  is  the  sign,  and  not  the  thing  signified.  It  is  the 
representative  of  something,  and  not  that  something  itself. 
It  is  a  promise  to  pay,  and  not  the  pay  itself.  It  is  a  credit, 
and  not  a  quittance.  And  what  makes  this  very  certain  is, 
that  all  paper  money  knows  it  to  be  true  about  itself.  It 
bears  this  truth  stamped  on  its  very  face.  It  does  not  even 
profess  to  stand  on  its  own  bottom,  but  leans  consciously 
and  conspicuously  on  some  solid  support.  The  French 
assignats  promised  to  redeem  themselves  in  land ;  the  conti¬ 
nental  bills  of  the  old  American  Congress  were  all  to  be  paid 
in  Spanish  milled  dollars  ;  the  bills  of  the  Bank  of  England 
profess  to  be  and  are,  redeemable  in  gold ;  the  present  legal- 
tender  notes  of  the  United  States,  and  the  current  national 
bank  bills,  are  all  in  terms  promises  to  pay  to  bearer  so 
many  legal  dollars  of  the  United  States,  that  is,  so  many 
times  25|-  grains  of  gold  standard  fine. 


MONEY. 


359 


18.  It  follows  from  all  this,  that  paper  money  is  made  up 
only  of  promises  made  by  somebody  to  pay  to  somebody 
else  a  definite  weight  of  coined  metal.  All  civilized  countries 
now  make  a  certain  weight  of  gold  or  silver  of  a  known  de¬ 
gree  of  fineness  their  acknowledged  standard  of  value ;  and 
accordingly,  paper  money  can  only  promise  to  pay  specie , 
since  specie  is  the  only  thing  that  can  be  meant,  when  the 
promise  is  to  pay  sovereigns ,  dollars ,  marks ,  francs.  Specie 
is  indeed  a  commodity,  like  other  commodities,  and  owes  its 
value  to  precisely  the  same  principles  as  they  owe  theirs,  but 
then  it  is  the  only  commodity  that  is  characterized  by  the 
denominations  of  money ;  and  therefore,  all  attempts  to 
make  a  paper  money  promise  to  pay  land,  wheat,  cotton, 
mercantile  bills,  or  any  other  valuable  thing  but  specie,  have 
always  failed  in  the  past,  and  always  must  fail,  because  they 
involve  a  direct  contradiction  in  terms.  Now,  paper  money 
as  thus  defined  and  made  definite  to  the  mind  is  of  two 
kinds,  namely,  convertible  and  inconvertible.  A  convertible 
paper  money  consists  of  promises  that  are  always  kept  by 
the  issuer  according  to  their  terms,  that  is  to  say,  that  are 
paid  in  specie  at  the  will  of  the  holder.  An  inconvertible 
paper  money  is  only  another  name  for  unfulfilled  promises. 
Is  it  any  wonder,  that  unfulfilled  promises  to  pay  invariably 
become  less  valuable  than  that  which  they  promise  to  pay  ? 
They  are  valuable  to  start  with,  else  they  could  not  become 
money,  and  they  are  valuable  because  men  suppose  the 
promise  will  be  kept :  they  are  commonly  valueless  to  end 
with,  because  men  lose  faith  in  the  fulfilment  of  a  promise 
long  delayed.  This  is  the  simple  secret  of  the  depreciation 
of  inconvertible  money  so  soon  as  the  amount  of  it  passes 
a  certain  limit,  and  so  soon  as  a  certain  time  has  elapsed 
after  its  issue  and  the  issuer  shows  no  signs  of  keeping  his 
word.  As  money  is  only  a  measure  of  Services,  and  as 
possible  Services  are  limited  at  any  one  time  and  place,  and 
consequently  as  the  amount  of  money  needed  for  healthful 
business  is  limited  also,  a  steadily  convertible  paper  money, 


860 


POLITICAL  ECONOMY . 


provided  the  limit  of  quantity  be  not  overpassed,  will  con¬ 
stitute  a  tolerable  money.  But  this  limit  of  quantity  is  apt 
to  be  overpassed,  whether  the  paper  money  be  convertible 
or  inconvertible,  and  especially  in  the  latter  case,  because 
the  temptation  to  issue  promises  to  pay  in  excess  of  the 
means  of  promptly  redeeming  them  always  besets  the  issue i 
ou  account  of  the  gain  to  him  in  such  issue  at  least  for  a 
time.  This  temptation  has  been  yielded  to  first  or  last  by 
every  nation,  and  probably  by  every  corporation,  that  has 
ever  issued  paper  money ;  and  a  sufficient  yielding  will 
surely  bring  in  the  “good  times”  of  the  boy,  who  boasted 
that  he  had  sold  his  hen  for  one  hundred  dollars  and  taken 
his  pay  in  two  fifty-dollar  puppies. 

19.  The  Bank  of  England  has  been  on  the  whole  the  best 
managed,  and  its  notes  have  gained  the  most  confidence  and 
the  widest  circulation,  of  all  the  bodies  that  have  ever  issued 
paper  money.  Let  us  take  the  best  specimen  of  its  kind, 
and  if  we  find  a  comparative  failure  even  here,  we  may  know 
what  to  expect  of  the  genus  as  a  whole.  We  shall  look  at 
that  Bank  now  solely  as  a  Bank  of  Issue,  because  its  wider 
and  more  complex  functions  as  a  Bank  of  Discount  cannot 
be  understood  until  we  have  studied  the  subject  of  Credit. 
“The  Governor  and  Company  of  the  Bank  of  England” 
are  an  association  of  capitalists  incorporated  by  Parliament 
in  1694,  on  the  original  condition  that  the  Stockholders 
should  loan  to  the  Government,  then  pressed  for  money, 
£1,200,000,  for  which  the  lenders  were  to  receive  8%  a 
year  as  interest,  and  also  £4,000  a  year  for  the  manage¬ 
ment  of  the  bank,  whose  capital  stock  was  just  this  debt 
due  from  the  government,  on  the  strength  of  which  the  bank 
was  authorized  to  issue  an  equivalent  amount  of  bills  to  cir¬ 
culate  as  money,  but  which,  however,  at  first  could  only  pass 
from  hand  to  hand  by  successive  indorsements.  The  capital 
stock  was  of  no  use  so  far  as  redeeming  these  bills  was  con¬ 
cerned,  the  stockholders  must  furnish  other  money  for  that 
purpose  besides  what  they  had  loaned  to  the  State,  but  the 


MONEY. 


361 


ownership  of  so  much  of  the  public  debt  made  the  bank  re¬ 
spectable,  and  tended  to  give  credit  to  its  bills,  which  at  first 
were  paid  promptly  in  coin  on  demand,  and  thus  the  Bank 
by  increasing  the  volume  of  money  and  by  showing  confi¬ 
dence  in  the  stability  of  the  State  strengthened  the  revolu¬ 
tionary  position  of  William  and  Mary,  and  consequently 
the  Whigs  were  the  friends  and  the  Jacobites  the  enemies 
of  the  Bank.  It  was  felt  that  if  James  II.  should  regain 
Ihe  throne,  no  pound  of  the  loan  would  ever  be  paid  tack. 
44  So  closely,”  says  Macaulay,  44  was  the  interest  of  the  bank 
bound  up  with  the  interest  of  the  government,  that  the  greater 
the  public  danger,  the  more  ready  was  the  bank  to  come  to  the 
rescue.”  As  already  related  under  the  last  general  proposi¬ 
tion,  the  silver  coins  of  the  realm  were  at  this  time  much 
worn  and  clipped ;  the  bank  had  received  them  at  their 
nominal  value;  but  after  the  recoinage  began  in  1696,  it 
was  obliged  to  redeem  its  bills  in  new  coin  of  full  weight, 
that  is,  for  perhaps  7  ounces  of  silver  received,  it  was  now 
bound  to  pay  12.  Consequently  its  enemies  made  a  run 
upon  the  bank  by  collecting  its  notes  to  a  large  amount  and 
presenting  them  for  redemption.  The  bank  was  obliged  to 
suspend  specie  payments,  at  first  partial^,  and  then  gener¬ 
ally.  In  February,  1697,  its  notes  were  24 <f0  below  par. 

A  new  charter  then  extended  the  term  and  doubled  the 
capital  Stock  of  the  Bank,  one-fifth  of  the  subscriptions  to 
which  increase  was  receivable  in  the  old  notes  of  the  bank. 
This  device  brought  up  all  the  notes  to  par.  This  second 
charter  provided,  that,  if  the  bank  thereafter  did  not  pay  its 
notes  on  demand,  they  might  be  presented  at  the  Exchequer 
and  be  redeemed  out  of  the  annuity  due  to  the  bank.  In 
1709,  the  term  was  again  extended,  the  capital  stock  again 
doubled,  that  is,  the  bank  loaned  as  much  more  to  the  State, 
and  the  interest  on  the  whole  debt  was  reduced  to  6  °f0  ;  while 
each  increase  of  the  debt  carried  along  with  it  the  privilege 
to  the  bank  of  increasing  by  so  much  the  issue  of  its  bills. 
This  is  a  vicious  principle ;  because  there  is  no  relation  be- 


362 


POLITICAL  ECONOMY. 


tween  the  proper  amount  of  money  in  any  country  and  the 
size  of  its  national  debt.  Moreover,  the  national  debt  back 
of  the  bills  has  had  very  little  to  do  in  making  them  a  toler¬ 
able  money',  but  the  solid  cash  back  of  them  with  which  tc 
convert  them  on  demand  has  put  into  them  their  goodness 
as  paper  money.  In  1720,  and  again  in  1745  when  the 
Young  Pretender  made  the  last  rally  of  the  Jacobites,  there 
were  severe  runs  upon  the  bank ;  on  both  occasions,  in 
order  to  gain  time,  notes  were  paid  in  shillings  and  six¬ 
pences.  Best  friends  were  also  accommodated  first,  who 
are  said  to  have  returned  the  bags  of  money  as  fast  as  they 
received  them.  The  practice  of  indorsing  the  notes  became 
gradually  disused,  though  the  law  at  first  did  not  follow  the 
innovation. 

Till  1759  no  notes  less  than  £20  were  issued  by  the  bank, 
but  thereafter  £15  and  £10  notes  began  to  go  ont.  The 
bank  kept  advancing  various  sums  to  government  on  various 
conditions,  mostly,  however,  at  3%,  till  1782,  when  the  debt 
stood  about  where  it  does  now,  £11,642,000.  Only  between 
1694  and  1711  were  the  issues  of  the  bank  limited  by  law  to 
the  amount  of  the  debt  owed  to  it  by  the  nation ;  between 
1711  and  1844  there  was  no  limitation  on  the  amount  of  bills, 
only  of  course  the  bank  was  required  to  pay  its  promises  in 
coin  on  demand ;  but  the  war  of  the  French  Revolution  made 
such  demands  upon  the  bank  for  money,  that,  just  100  years 
after  the  first  suspension,  that  is,  in  1797,  the  bank  sus¬ 
pended  specie  payments,  and  did  not  resume  them  till  1821. 
Government  and  the  business  men  of  London  did  their  best 
to  hold  up  the  credit  of  the  notes  during  the  suspension,  but 
they  were  not  made  a  legal  tender  for  debts.  Government 
received  them  at  par  for  taxes,  and  provided  that  business 
payments  in  notes  would  be  held  as  payments  in  cash  if 
offered  and  accepted  as  such.  Debtors,  having  tendered 
bank  notes,  which  the  creditor  refused,  had  certain  privi¬ 
leges  before  the  law  which  other  debtors  had  not.  The 
notes  therefore  had  a  quasi  legalization,  but  not  a  forced 


MONEY. 


863 


circulation.  The  bank  was  also  authorized  at  this  time 
to  issue  £5,  £2,  and  £1  notes.  Cautiously  issued  at  first, 
bank  paper  continued  at  par  for  several  years  after  the 
suspension,  which  proves  that  when  government  possesses 
the  monopoly  of  issuing  paper  money,  and  carefully  limits 
its  quantity,  and  both  receives  and  pays  it  out  at  par,  it  may 
keep  an  inconvertible  paper  at  par,  or  even  by  sufficiently 
limiting  its  quantity  carry  it  above  par.  But  this  truth  does 
not  make  an  inconvertible  paper  a  good  money,  because  it 
does  not  make  it  a  self-regulating  money,  and  because  gov¬ 
ernment  is  not  wise  and  firm  enough  to  fix  and  maintain  a 
proper  limit.  Though  Parliament  intended  in  successive  acts 
to  confirm  to  the  Bank  of  England  the  monopoly  of  banking  by 
enacting  that  no  partnership  of  more  than  six  persons  should 
take  up  money  on  its  own  bills,  yet  the  common  law  assured 
to  private  persons  and  smaller  partnerships  the  right  to  do 
this ;  and  private  bankers  multiplied  after  the  suspension, 
since  they  were  allowed  to  pay  their  notes  in  Bank  of  Eng¬ 
land  notes.  Thus  the  quantity  of  paper  money  gradually 
increased  till  in  August,  1813,  the  Bank  of  England  notes 
were  at  oO°/0  discount  in  gold. 

In  1829,  all  notes  whatsoever  for  less  than  £5  were  for¬ 
bidden  to  be  circulated  in  England.  In  1844  Sir  Robert 
Peel  gave  the  bank  through  Parliament  a  new  constitution, 
under  which  it  is  still  managed,  which  made  the  Issue  depart¬ 
ment  of  the  bank  quite  distinct  from  the  Loaning  depart¬ 
ment,  and  restricted  the  issue  of  bills  to  £15,000,000  on 
the  strength  of  securities  (most  of  which  is  the  government 
debt) ,  and  for  all  issues  beyond  this  amount  it  must  have 
£  for  £  of  specie  in  its  coffers.  Thrice,  however,  the  gov¬ 
ernment  has  authorized  the  bank  to  issue  more  bills  than 
this  provision  allows  on  temporary  securities,  namely,  in 
1847,  1857,  and  in  I860.  The  average  amount  of  notes 
issued  under  these  conditions  is  about  £30,000,000,  includ¬ 
ing  the  reserve  of  notes  held  by  the  Loaning  department  in 
lieu  of  gold.  No  note  once  returned  to  the  bank  is  eve* 


864 


POLITICAL  ECONOMY . 


re-issued ;  and  no  note  presented  for  payment  (not  even  if 
counterfeited)  has  been  dishonored  since  1821. 

20.  An  irredeemable  paper  money,  or  an  ostensible  paper 
money  that  pledges  payment  in  any  thing  else  than  gold  or 
silver,  only  needs  to  be  described  to  be  condemned.  John 
Law,  a  shrewd  Scotchman,  born  in  Edinburgh  in  1671,  son 
of  a  goldsmith,  with  an  innate  talent  for  finance  and  well- 
educated,  was  the  first  to  give  scientific  form  and  color  to 
the  false  theory  that  paper  money  represents  commodities 
of  some  sort,  and  may  be  issued  to  an  amount  equal  to  the 
value  of  these.  “  Any  goods  that  have  the  qualities  neces¬ 
sary  in  money ,  may  be  made  money  equal  to  their  value . 
Five  ounces  of  gold  is  equal  in  value  to  £20,  and  may  be 
made  money  to  that  value  ;  an  acre  of  land  is  equal  to  £20, 
and  may  be  made  money  equal  to  that  value ,  for  it  has  all 
the  qualities  necessary  in  money.”  The  fallacy  in  these 
words  of  Law  is  patent  enough  to  any  one  who  will  stop 
to  think  a  moment  about  the  nature  of  Money.  Because 
land,  for  example,  has  value,  it  does  not  follow  that  it  has 
“  all  the  qualities  necessary  in  money  ;  ”  and,  as  a  matter 
of  fact,  it  lacks  the  precise  quality  necessary  in  money, 
because,  though  it  has  purchasing-power,  it  cannot  from  its 
very  form  and  nature  become  a  generalized  and  current  pur¬ 
chasing-power.  Money  is  indeed  a  valuable  thing,  but  that 
does  not  prove  that  all  valuable  things  can  be  money.  With 
this  radical  vice  of  Law’s  view  was  wrapped  up  another, 
namely,  that  there  may  be  in  any  country  as  much  paper 
money  as  the  sum  of  the  values  of  all  its  valuable  things. 
Now,  we  have  learned  perfectly,  what  escaped  the  acute 
intellect  of  John  Law,  that  Money  is  only  a  valuable  measure 
of  all  other  salable  Services  ;  and  therefore,  that  the  amount 
of  it  that  can  be  made  useful  at  any  one  time  and  place  is 
strictly  limited,  and  bears  very  little  relation  to  the  sum  of 
the  values  present  at  that  time  and  place. 

Scotland  fought  shy  of  Law’s  idea  when  he  published  it 
there  in  1705,  and  so  did  Paris  the  first  time  he  visited  that 


MONET. 


365 


nty,  in  which  and  in  other  cities  he  gambled  successfully 
and  talked  finance  to  princes  and  statesmen  fascinatingly ; 
but  when  he  returned  to  Paris  in  1715  with  his  ill-gotten 
fortune,  he  gained  the  ear  of  the  Regent  Duke  of  Orleans, 
who  permitted  him  to  found  a  bank  there,  in  which  were 
incorporated  some  sound  principles  of  monetary  science  as 
well  as  the  prime  fallacy  of  his  system.  The  bank  bought 
a  portion  of  the  State  Debt,  just  as  the  Bank  of  England 
had  done,  and  laid  in  also  a  fair  stock  of  coin,  and  there¬ 
upon  issued  a  paper  money.  For  a  couple  of  years,  or  so, 
the  bank  surpassed  all  hopes,  for  Law  had  touched  a  spring 
till  then  but  little  known  in  France,  the  potent  spring  of 
Credit.  But  his  whole  thought,  meditated  on  for  years, 
could  not  be  expressed  through  a  private  bank.  The  State 
should  be  a  banker ;  it  should  collect  all  its  revenues  into 
a  central  bank,  and  attract  the  money  of  individuals  to  it  as 
deposits ;  besides,  the  State  has  public  property  of  vast 
value,  on  the  strength  of  which  paper  money  can  be  emitted 
and  made  legal  tender ;  and  thus  the  State,  instead  of  bor¬ 
rowing,  should  lend  to  all  on  easy  terms,  and  the  profits  thus 
accruing  would  lessen  or  abolish  taxes.  Nor  was  this  all. 
The  State  should  also  be  a  merchant ;  the  whole  nation 
should  form  a  commercial  company,  a  body  of  traders, 
whose  common  treasury  should  be  the  State  bank.  Com¬ 
merce  by  individuals  creates  great  wealth ;  why  should  not 
the  organized  commerce  of  a  State  make  everybody  rich? 
The  discounts  of  the  bank,  and  the  -profits  of  the  trade, 
would  surely  provide  for  the  public  service  without  taxation. 
These  vast  ideas  were  actually  carried  out.  Law’s  bank 
became  the  Royal  Bank,  issuing  a  paper  money  guaranteed 
by  the  State  and  resting  back  upon  the  value  of  all  national 
property.  The  money  was  receivable  in  taxes,  nominally 
redeemable  in  coin,  and  made  a  legal  tender.  It  actually 
bore  at  one  time  5  and  10  °J0  premium  over  gold  and 
silver.  People  were  anxious  to  exchange  their  coin  for 
notes.  Meanwhile  a  commercial  company  was  formed  in 


866 


POLITICAL  ECONOMY. 


9 


connection  with  the  bank,  to  which  the  State  ceded  at  first 
the  monopoly  of  the  commerce  of  Louisiana  and  of  the 
Canada  beaver  trade  for  twenty-five  years,  and  the  soil  of 
Louisiana  forever ;  under  the  auspices  of  which  New  Or¬ 
leans  was  founded,  and  named  from  the  Regent,  the  patron 
of  the  grand  system ;  and  in  succession,  the  monopoly  of 
tobaccos,  the  rights  of  the  Senegal  Company,  of  the  East 
ludia  Company,  of  the  China  Company,  and  of  the  Barbary 
Company ;  until,  having  almost  all  the  commerce  of  France 
outside  of  Europe  in  its  hands,  it  entitled  itself  the  Company 
of  the  Indies.  Its  shares  rose  from  a  par  value  of  500 
francs,  to  10,000  francs,  more  than  forty  times  their  value 
in  specie  at  their  first  emission.  To  support  such  specula¬ 
tions,  which  completely  turned  the  heads  of  all  classes  of 
the  people,  the  amount  of  paper  money  reached  at  last  the 
sum  of  3,071,000,000  francs,  833,000,000  more  than  had 
been  legally  authorized  to  be  emitted.  The  collapse  of  this 
most  gigantic  financial  bubble  of  history  was  terrific.  Before 
the  close  of  1720,  the  shares  of  the  Company  could  be 
bought  for  a  louis  d’or,  and  the  paper  money  became  worth¬ 
less.1 

The  utter  failure  of  Law’s  paper  money,  which  ran  its 
course  in  about  4  years,  did  not  exorcise  from  the  French 
mind  the  evil  spirit  that  entered  into  it  in  1715.  Again  at 
the  close  of  that  century  France  tested  on  a  grand  scale  the 
merits  of  paper  money  issued  on  the  principle  that  money 
represents  commodities.  As  the  Great  Revolution  went  for¬ 
ward  and  a  scarcity  of  money  w^as  publicly  felt,  the  National 
Assembly  issued  in  1790  under  the  name  of  “assignats” 
a  paper  money  whose  promises,  though  couched  in  terms  of 
fiancs,  were  really  to  be  redeemed  in  lands;  for  they  were 
receivable  in  payment  for  any  of  those  lands  of  the  Church 
which  had  just  been  confiscated  to  the  State  at  any  public 


1  Martin’s  Decline  of  the  Monarchy,  chap,  i;  Macleod’s  Theoi-y  and  Practice  oi 
Banking,  chap,  xi;  Banooft’s  United  States,  chap,  xxiii;  New  Am.  Cyclo.,  Axt. 
John  Law. 


MONEY. 


367 


sale  of  them.  The  first  emission,  but  not  the  rest,  bore 
interest.  That  issue  was  400,000,000  francs  —  about  one- 
fifth  the  value  of  the  confiscated  lands.  In  September,  800,- 
000,000  more  were  authorized,  Talleyrand  opposing  and 
Mirabeau  strongly  urging  these  additional  issues.  “  It  is  in 
vain,,,  said  Mirabeau,  “to  compare  assignats,  secured  on 
the  solid  basis  of  these  domains,  to  an  ordinary  paper  cur¬ 
rency  possessing  a  forced  circulation.  They  represent  real 
property,  the  most  secure  of  all  possessions,  the  land  on 
which  we  tread.”  Nevertheless,  and  though  all  assignats 
Tvere  legal- tender,  they  drooped.  The  government  in  alarm, 
while  issuing  on  the  one  hand  enormous  quantities  of  the 
paper  to  meet  the  vast  expenses  of  the  Revolution,  which 
quantities  were  swelled  by  skilful  counterfeiters  in  the  pris¬ 
ons  and  elsewhere,  took  strong  measures  on  the  other  to  prop 
up  their  market  value ;  the  use  of  coin  was  prohibited ;  a 
maximum  price  in  assignats  for  every  thing  was  established 
by  law  ;  heavy  penalties  and  at  last  death  were  decreed  against 
those  who  refused  to  receive  them  at  par ;  but  it  was  all  in 
vain.  “They  sink  now,”  says  Carlyle,  “with  an  alacrity 
beyond  parallel.”  In  June,  1793,  the  assignats  had  fallen 
to  33,  and  in  August  to  16  °J0.  Renewed  confiscations  kept 
the  estimated  value  of  the  public  domains  far  in  advance 
of  the  par  value  of  the  assignats  based  upon  them  ;  but  this 
had  no  tendency  to  prevent  the  depreciation  of  the  assignats, 
because  money  is  a  medium  of  exchange ,  and  its  proper 
amount  has  no  relation  to  the  estimated  value  of  any  com¬ 
modities  at  all.  In  February,  1796,  the  assignats  legally 
issued  had  amounted  to  45,500,000,000  francs,  and  had 
fallen  to  one  two-hundred-and-sixty-fifth  part  of  their  nomi¬ 
nal  value,  that  is,  to  -f  %.  The  government  then  offered 
to  redeem  them  at  30  for  1  in  “  mandats ,”  which  entitled 
the  holder  to  take  immediate  possession  at  their  estimated 
value  of  any  of  the  lands  pledged  by  the  assignats.  This 
device  took  up  some  of  the  old  paper,  but  proved  futile  to 
recover  for  it  its  value  ;  and  in  less  than  six  months  a  Decree 


368 


POLITICAL  ECONOMY. 


ended  the  whole  matter  by  permitting  any  one  to  do  business 
in  any  money  he  chose  ;  and  traffic,  which  had  practically 
ceased  under  the  paper  money,  revived  again  at  the  sight 
of  the  coin,  which  of  course  in  accordance  with  Gresham’s 
law  had  been  wholly  out  of  circulation.  Thus  the  assignats 
had  a  course  of  about  6  years.  The  distress  and  consterna¬ 
tion  into  which  a  country  falls  when  its  current  Measure  of 
Sendees  is  disturbed  and  destroyed,  as  it  was  in  this  case, 
is  ast  all  powers  of  description.  The  prisons  and  the 
guillotine  did  not  compare  with  the  assignats  in  causing  suf¬ 
fering  during  those  six  years.  This  example  is  significant, 
because  it  shows  the  powerlessness  of  even  the  strongest  and 
most  unscrupulous  governments  to  regulate  the  value  of  any 
thing.  The  assignats  were  depreciating  during  the  very 
months  in  which  Robespierre  and  the  Committee  of  Public 
Safety  were  wielding  the  power  of  life  and  death  in  France 
with  terrific  energy.  They  did  their  utmost  to  stop  the  sink¬ 
ing  of  the  revolutionary  paper.  But  value  knows  its  own 
laws,  and  follows  them,  in  spite  of  decrees  and  penalties. 

21.  As  a  result  of  this  entire  discussion,  it  may  be  laid 
down  with  considerable  confidence,  that  the  safest  and  most 
economical,  and  on  the  whole  the  best,  money  is  gold  and 
silver  coin.  There  is  no  need  in  any  commercial  country  of 
any  other  money ,  still  less  of  any  other  legal-tender.  This 
position  does  not  exclude  the  freest  possible  use  of  checks, 
drafts,  bills  of  exchange,  money-orders  through  the  post- 
office,  and  any  other  convenient  form  of  pure  credit.  These 
are  sufficient  to  prevent  for  the  most  part  all  burdensome 
transfers  of  coin.  The  sphere  of  money  and  the  sphere  of 
credit  are  quite  distinct  spheres.  The  functions  of  money 
are  too  delicate  and  too  vastly  important  to  be  well  performed 
by  any  instrument  that  is  essentially  credit.  Still,  the  lead¬ 
ing  nations  of  the  world,  including  the  United  States,  use 
paper  money  in  part ;  and  the  people  of  the  latter  between 
1862  and  1878  had  in  effect  no  other  money  than  irredeem¬ 
able  promises  to  pay,  some  of  it  issued  by  the  national  gov- 


MONET . 


369 


ernment  directly,  and  the  rest  of  it  by  incorporated  banks. 
It  will  doubtless  be  long  before  the  nations  come  to  disuse 
every  form  of  paper  money,  because  there  is  much  that  is 
gainful  to  some,  and  more  that  is  attractive  to  all,  about  such 
an  elastic  measure  of  values  ;  and  each  generation  easily  for¬ 
gets,  even  if  it  ever  learns,  the  enormous  losses  that  have 
hitherto  accompanied  sooner  or  later  even  the  most  successful 
forms  of  even  convertible  paper  money.  It  is  more  than 
doubtful  whether  England  is  any  the  richer  on  the  whole  for 
the  issue  of  Bank  of  England  bills,  and  it  is  certain  that  the 
United  States  is  much  the  poorer  for  the  attempted  use  of  all 
the  manifold  forms  of  paper  money  that  its  sanguine  people 
have  handled  first  and  last.  But  Political  Economy  as  the 
Science  of  Sales  must  have  its  say  about  what  is  the  best 
instrument  of  sales,  whether  men  will  hear  or  forbear. 

22.  Whether  the  money  of  a  nation  be  coin  or  paper,  or 
both,  when  once  it  is  in  the  hands  of  the  people,  the  govern¬ 
ment  has  no  right  to  concern  itself  with  the  rate  of  interest  at 
which  one  person  loans  this  money  to  another.  Many  of  the 
nations,  and  most  of  the  States  of  this  Union,  have  on  their 
statute-books  what  are  called  Usury  Laws,  which  prohibit 
the  lender  from  taking  more  than  a  prescribed  rate  °J0  for 
the  use  of  the  money  loaned.  The  penalty  is  sometimes  the 
forfeiture  of  the  entire  interest,  and  sometimes  of  the  entire 
debt.  These  laws  cannot  justify  themselves  for  a  moment 
in  the  light  of  sound  principles  of  Political  Economy.  Their 
origin  may  be  explained  by  a  reference  to  two  false  views, 
now  happily  exploded. 

(a)  The  law  of  Moses  forbade  to  the  Israelites  the  taking 
from  one  another  any  interest  on  money  loaned,  but  at  the 
same  time  it  allowed  them  to  take  such  interest  freely  of 
strangers  ;  the  permission  in  the  one  case  going  to  show  that 
there  is  nothing  in  the  taking  of  interest  in  itself  unjust  or 
sinful,  and  the  prohibition  in  the  other  being  readily  explain¬ 
able  from  the  general  purpose  of  the  municipal  regulations 
of  Moses,  which  was  to  found  an  agricultural  and  not  a  trad- 


370 


POLITICAL  ECONOMY. 


ing  commonwealth,  in  which  every  f amily  was  to  possess  land 
that  could  not  be  permanently  alienated  or  sold,  in  which  it 
was  a  great  object  to  maintain  the  personal  independence  and 
equality  of  these  families,  in  which  the  law  for  the  recovery 
of  lebts  was  very  summary  and  effective,  lessening  the  risk 
of  losing  the  principal,  and  which  was  to  be  and  was  sedu¬ 
lously  separated  in  its  usages  from  the  surrounding  nations. 
It  has  been  well  understood  for  a  long  time  that  the  municipal 
code  of  Moses  was  local  and  peculiar,  not  necessarily  appli¬ 
cable  at  all  to  the  circumstances  of  other  States,  and  in  no 
sense  binding  on  the  conscience  of  legislators  ;  and  yet  there 
doubtless  sprang  from  the  prohibition  referred  to  a  prejudice 
against  interest,  and  this  prejudice  was  perhaps  deepened  in 
the  Middle  Ages  and  onwards  by  the  conduct  of  the  Jews 
themselves,  who,  in  addition  to  their  sin  of  persistently  grow¬ 
ing  rich  in  spite  of  the  endless  disabilities  laid  on  them  by 
the  people  of  Europe,  always  demanded,  in  accordance  with 
the  permission  of  their  great  lawgiver,  a  good  rate  per  centum 
of  interest  from  those  strangers  to  whom  they  became  money¬ 
lenders.  The  Jews  were  everywhere  hated,  and  consequently 
the  usur}7  which  they  practised  was  hated  also.  The  funda¬ 
mental  absurdity  of  forbidding  in  trading  communities  the 
taking  of  interest  on  sums  loaned  to  a  borrower  which  he  was 
at  liberty  to  use  for  his  own  profit,  deterred  the  nations  from 
going  to  the  length  of  prohibition,  unless  it  might  be  in  the 
case  of  the  hated  Jews.  There  is  a  clause  of  Magna  Charta, 
interesting  as  showing  how  early  the  children  of  Abraham 
became  the  money-lenders  of  Europe,  to  the  effect  that, 
during  the  minority  of  any  baron,  while  his  lands  are  in 
wardship,  no  debt  which  he  owes  to  the  Jews  shall  bear  any 
interest. 

(b)  Governments  formerly  deemed  themselves  competent 
to  determine  and  fix  the  general  purchasing-power  of  their 
own  money.  Even  the  Constitution  of  the  United  States 
uses  this  language:  “to  coin  money,  regulate  the  value 
thereof  and  of  foreign  corns.”  There  was  formerly,  and 


MONEY. 


371 


there  is  still  to  some  extent,  a  curious  and  harmful  confusion 
in  the  public  mind  in  respect  to  this  term,  “the  value  of 
money.”  In  the  only  proper  sense  of  the  term,  the  value 
of  money  means  its  power  of  purchasing  services  in  general, 
and  the  value  of  money  is  high  when  a  given  sum  of  it  will 
purchase  much  of  general  services,  and  low  in  the  contrary 
case  ;  and  a  high  or  low  value  of  money  in  this  true  sense 
depends  on  a  very  distinct  set  of  causes  from  those  which 
determine  the  high  or  low  rate  of  interest  on  money  loaned  ; 
nevertheless,  so  long  as  governments  supposed  that  they 
could  regulate  the  former,  it  is  very  natural  that  they  should 
also  suppose  that  they  could  regulate  the  latter  ;  and  although 
all  intelligent  governments  have  given  over  the  idea  of  being 
able  to  regulate  the  general  value  of  the  money  they  furnish 
to  the  people,  manj-  of  them  still  adhere  to  the  notion,  equally 
false  with  the  other,  that  they  are  able  to  regulate  the  loan¬ 
able  value,  or  the  rate  of  interest,  at  least  to  prevent  any 
more  than  their  prescribed  maximum  rate  from  being  taken. 
A  few  simple  considerations  will  sufficiently  condemn  all  usury 
laws. 

(1)  It  is  at  once  needless  and  invidious  to  deny  by  law 
to  monej^-lenders,  who  offer  just  as  honorable  and  useful  ser¬ 
vices  to  society  as  any  other  class  of  men,  the  privilege  of 
selling  their  service  for  what  it  will  bring  in  the  market, 
while  other  men  in  every  department  of  business  are  allowed 
to  exchange  their  services  on  the  best  terms  they  can  make 
without  interference  or  control.  Let  us  see  precisely  the 
nature  of  the  transaction  when  one  man  loans  money  to 
another.  It  is  a  clear  case  of  value.  The  lender  does  a 
service  to  the  borrower,  and  for  this  service  justly  demands 
a  compensation.  The  service  is  this:  The  lender  might 
himself  use  the  money  to  gratify  his  own  desires.  It  is  his 
money  ;  he  may  use  it,  as  he  pleases,  for  his  own  gratifica¬ 
tion.  Or  he  may  himself  employ  it  productively,  and,  at  the 
end  of  the  period,  receive  back  his  principal  with  the  custo¬ 
mary  rate  of  profit.  If  he  surrenders  this  advantage  to  the 


372 


POLITICAL  ECONOMY. 


borrower,  if  he  passes  over  to  him  the  right  to  use  this  money, 
say,  for  a  year,  he  practises  what  we  call  in  Political  Economy 
abstinence.  For  this  abstinence  he  has  a  right  to  claim  a  re¬ 
ward,  precisely  as  the  man  has  a  right  to  claim  a  reward  who 
foregoes  working  for  himself  in  order  to  work  for  another. 
This  reward  of  abstinence  is  interest.  The  money-lender 
foregoes  an  advantage.  He  performs  a  service  for  the  bor- 
lower ;  and,  therefore,  the  right  to  interest  stands  on  just  as 
unassailable  ground  as  the  right  to  wages.  Moreover,  the 
loanable  value  of  money  varies  under  Supply  and  Demand 
just  like  other  values ;  there  are  always  those  who  want  to 
borrow,  and  always  those  who  want  to  lend ;  both  parties 
must  be  assumed  to  know  their  own  minds,  and  to  be  equally 
competent  to  make  their  own  bargains  ;  it  is  a  case  of  mutual 
exhange  for  a  mutual  benefit,  like  all  other  trade ;  and  the 
current  rate  of  interest  is  determined  at  any  one  time  by  the 
actual  free  exchanges  between  borrowers  and  lenders.  Now 
for  any  government  to  try  to  compel  a  lender  by  law  to  take 
only  G%  when  his  money  is  worth  8,  is  a  direct  violation  of 
the  rights  of  property.  It  is  a  forcible  and  pernicious  inter¬ 
ference  with  the  freedom  of  contracts.  It  is  based  on  the 
false  premise  that  the  loanable  value  of  money  is  uniform, 
and  that  government  is  competent  to  determine  what  it  is. 
No  value  is  uniform.  And  no  government  is  competent  to 
determine  even  the  maximum  price  of  money  loaned,  any 
more  than  the  maximum  price  of  commodities. 

(2)  Usury  laws  are  almost  uniformly  disregarded,  both 
by  the  governments  which  make  them  and  by  the  people  for 
whom  they  are  made.  Indeed,  such  laws  cannot  be  enforced 
in  a  commercial  community.  Common  sense  is  outraged  by 
a  law  which  requires  a  man  to  part  with  his  property  at  less 
than  the  actual  value  ;  and  when  common  sense  is  agaiust  a 
law,  it  stands  a  slim  chance  of  observance.  If  the  legal 
rate  be  six,  and  the  actual  worth  be  eight,  who  lends  at  six? 
Not  the  banks.  They  require  deposits  of  their  customers, 
the  use  of  whose  money  shall  make  up  to  them  the  differ- 


MONEY. 


373 


enee  between  the  legal  and  the  actual  rate.  The  modes  of 
evasion  are  various,  but  they  are  adequate  and  universal. 
Besides,  governments  themselves  have  shown  a  noteworthy 
inconsistency  in  this  matter,  which  incidentally  proves  the 
unsoundness  of  their  whole  action.  While  announcing  pains 
and  penalties  to  those  who  take  more  than  a  given  rate,  they 
are  careful  never  to  bind  themselves  down  to  any  given  rate. 
Governments  are  always  more  or  less  borrowers,  and  if  usury 
laws  are  necessary  in  order  to  help  borrowers  in  a  pinch,  there 
ought  to  be  a  clause  in  the  organic  law  of  every  country,  for¬ 
bidding  the  government  to  pay  and  its  lenders  to  take  any 
more  than  a  certain  rate  per  cent.  There  is  no  such  clause 
in  any  organic  law.  Governments  wisely  follow  the  natural 
market,  and  borrow  low  when  they  can,  and  pay  high  when 
they  must.  In  the  last  months  of  Mr.  Buchanan’s  adminis¬ 
tration,  the  United  States  paid  1 2%  on  a  public  loan,  and 
could  get  but  little  at  that.  Sauce  for  the  goose  is  sauce  for 
the  gander,  and  if  usury  laws  are  good  for  the  citizens,  some 
solid  reason  ought  to  be  rendered  why  they  are  not  good  for 
the  government.  The  truth  is,  the}’  are  not  good  for  either, 
since  natural  laws  are  perfectly  competent  to  regulate  the 
rate  of  interest,  and  do  regulate  it  substantially  in  spite  of 
a  factitious,  impertinent,  and  mischief-making  interference. 
The  rate  of  interest  has  little  to  do  with  the  value  of  money, 
properly  so  called.  It  depends  on  the  proportion  between 
the  sums  of  money  ready  to  be  loaned  in  any  market,  and 
the  amount  wanted  at  that  time  by  good  borrowers  in  that 
market.  Every  rise  in  the  rates  tends  to  lessen  the  demand 
of  borrowers,  and  every  fall  to  enhance  that  demand,  and 
thus  eveiy  rise  and  fall  of  interest  tends  to  check  itself ^  and 

r 

while  the  daily  and  monthly  variations  of  the  rate  for  first- 
class  borrowers  are  very  considerable,  the  general  average 
of  the  rate  by  years,  especially  in  England,  where  usury  laws 
are  mostl}'  or  wfiiolly  swept  away,  is  remarkably  uniform. 

(3)  If  Usury  laws  were  not  disregarded,  they  would  be 
even  worse  in  their  effects  than  they  are  now.  We  must 


374 


POLITICAL  ECONOMY. 


suppose,  that  their  aim  is,  to  aid  borrowers,  and  make  it 
easier  for  them  to  contract  loans.  But  are  borrowers,  as 
a  class,  any  more  deserving  of  the  fostering  care  of  gov¬ 
ernment  than  are  lenders?  Even  if  it  could  make  its  in¬ 
terference  effective,  as  it  cannot,  is  there  any  reason  why 
government,  leaving  these  borrowers  to  make  all  other  bar¬ 
gains,  sales,  and  transfers  according  to  their  best  skill  and 
judgment,  should  rush  to  their  rescue  only  when  they  propose 
to  borrow  money?  If  they  are  competent  to  do  their  other 
business  for  themselves,  government  pays  their  capacity  a 
poor  compliment  in  undertaking  to  help  them  in  the  single 
matter  of  making  loans  ;  and  the  borrowers  in  turn  have 
reason  to  pray  to  be  delivered  from  their  friends,  since 
they,  of  all  others,  would  be  the  men  especially  injured,  if 
all  the  lenders  obeyed  the  usury  laws.  Suppose  that  a  bor¬ 
rower  is  in  great  need  of  a  loan,  and  that  for  some  reason 
his  credit  is  now  a  little  weak.  Many  men  would  be  walling 
to  loan  him  at  9%,  which  affords  a  margin  for  the  extra  risk, 
but  at  6,  which  we  will  suppose  the  maximum  allowed  by  the 
law,  he  cannot  borrow  a  dollar,  because  his  credit  is  not  quite 
equal  to  the  best.  If,  therefore,  the  lenders  obey  the  law, 
he,  and  such  as  he,  must  fail.  And  because  it  is  unlawful 
to  take  over  6%,  he  will  be  obliged  to  pay  those  who  are 
willing  to  violate  the  law  10  or  12,  to  compensate  them  for 
the  risk  and  odium  of  such  violation,  while,  under  freedom, 
he  could  borrow  at  8.  Moreover,  if  the  loanable  value  of 
money  at  the  time  be  actually  9,  while  the  law  only  allows 
6,  many  men  will  attempt  to  use  their  own  capital  produc¬ 
tively,  who  would  otherwise  loan  it,  in  order  to  realize  the 
high  rate  ;  and  this  action  of  theirs  still  further  restricts  the 
loan-market  and  makes  it  more  difficult  to  borrow.  If,  then, 
the  purpose  of  government  be  to  aid  borrowers,  no  means 
could  be  more  unskilfully  chosen  for  that  end  than  to  pass 
usury  laws,  since  such  laws,  so  far  as  they  are  obeyed,  have 
necessarily  the  opposite  tendency ;  and  even  when  violated 
redound  to  the  disadvantage  of  borrowers,  so  long  as  the 


MONEY. 


375 


laws  themselves  are  popularly  regarded  as  of  any  legal  or 
moral  force. 

In  1716,  the  Bank  of  England,  as  a  great  loaning  institu¬ 
tion,  was  exempted  from  the  operation  of  all  usury  laws : 
why  the  bank  only,  and  not  other  people  as  well,  the  Act  of 
Parliament  does  not  state.  In  1867,  the  State  of  Massa¬ 
chusetts  repealed  all  its  usury  laws,  though  6%  is  to  be 
understood  in  the  absence  of  special  agreement,  and  the 
result  has  been  entirely  satisfactory  to  all  classes  of  the 
people.  Rhode  Island  had  done  this  previously,  and  Con¬ 
necticut  did  it  subsequently,  and  both  have  experienced  equal 
satisfaction  in  the  result.  Other  States  will  soon  follow  in 
their  lead  ;  and  this  relic  of  ignorance  and  prejudice  will  pass 
away.  Adam  Smith  left  the  “Wealth  of  Nations”  disfig¬ 
ured  by  the*  concession  that  governments  might  properly 
enough  pass  usury  laws  ;  but  it  is  gratifying  to  be  able  to 
add,  that  he  was  convinced  of  his  error  in  that  by  Bentham’s 
book  on  usury,  and  fully  acknowledged  his  conviction  in  the 
spirit  of  a  genuine  lover  of  truth.  We  conclude,  then,  that 
usury  laws  are  needless,  since  interest,  like  all  other  prices, 
will  perfectly  adjust  itself.  They  are  disregarded,  since 
lenders  will  loan  or  withhold  their  money  according  to  their 
own  keen  sense  of  interest.  They  are  pernicious,  since  the}* 
infringe  the  rights  of  property,  and  tend  to  prevent  weak 
borrowers  from  having  a  fair  chance  in  the  market. 

The  principal  points  in  this  chapter  may  be  gathered  up 
into  the  following  brief  propositions  :  — 

1.  Money,  as  a  device  of  men ,  may  be  made  intelligible  to 
men. 

2.  Some  of  the  difficulties  about  money  have  arisen  from 
the  variety  of  objects  chosen  as  money. 

3.  Money,  as  a  valuable  thing,  can  only  be  understood  when 
value  in  general  is  well  understood. 

4.  The  inconveniences  of  barter  are  so  great,  that  it  is  not 
strange  that  some  common  measure  of  services  teas  early  hit 
upon. 


376 


POLITICAL  ECONOMY. 


5.  This  outward  measure  came  naturally  to  be  a  medium 
in  traffic,  and  even  its  name  a  mental  measure  in  bargains. 

6.  Money  is  discriminated  from  all  other  values ,  in  that  it 
is  a  legal  and  current  measure  of  services. 

7.  Changes  or  falsity  in  the  measure  disturb  by  losses  the 
whole  world  of  values. 

8.  National  experiments ,  through  successive  rejections ,  have 
settled  on  gold  as  the  best  material  for  money. 

9.  Subsidiary  coins  may  be  made  of  silver ;  but  Gresham* s 
law  forbids  a  double  standard. 

10.  Paper  money  is  only  promises  to  pay  coin ;  promises 
are  liable  to  be  broken;  therefore ,  promises  are  not  the  best 
money. 

11.  Promises  are  tolerable  in  proportion  as  they  are  kept; 
consequently ,  some  paper  money  is  better  than  the  rest. 

12.  Money  depreciated  from  the  highest  standard  raises 
prices ,  but  not  of  all  things  equally  in  amount  or  uniformly 
in  time:  it  works ,  therefore ,  great  injustice. 

13.  A  universal  coinage  would  be  a  vast  international 
gain. 

14.  The  interest  of  money  ought  to  be  free  to  all  contracting 
parties. 


MONET  IN  TUE  UNITED  STATES. 


377 


CHAPTER  X. 

MONEY  IN  THE  UNITED  STATES. 

The  general  doctrine  of  Money  has  been  fully  given  in  the 
last  chapter.  It  is  because  the  monetary  history  of  the  United 
States  throws  so  much  fresh  light  upon  old  truths,  as  well 
as  brings  out  into  sharp  relief  certain  minor  points  not  yet 
made,  that  we  venture  to  offer  to  guide  the  reader  in  tracing 
the  steps,  state  and  national,  the  earlier  and  the  more  recent, 
that  have  been  taken  in  this  country  towards  a  sound  and 
uniform  money.  No  national  monetary  history  is  so  instruc¬ 
tive  as  ours ;  almost  every  possible  variety  of  paper  money 
has  been  tried  at  one  time  or  another ;  the  separate  Colonies 
issued  it,  and  the  confederated  Colonies  issued  it,  in  mani¬ 
fold  forms ;  the  States  have  issued  it  through  banks  incor¬ 
porated  by  them,  and  the  Nation  has  issued  it  by  its  own 
direct  authority  as  well  as  through  banks  chartered  by  that 
authority ;  since  1794,  the  Nation  has  also  minted  coins,  for 
it  has  under  the  Constitution  a  monopoly  of  the  coinage ; 
between  1836  and  1862,  the  national  government  discarded 
in  its  own  operations  every  kind  of  paper  money,  both  pay¬ 
ing  out  and  demanding  to  receive  coin  money  only ;  while 
since  1863  the  national  authority  has  claimed  and  exercised 
the  mo.iopoly  of  furnishing  the  people  all  the  paper  money 
as  well  as  all  the  coins. 

From  the  first  establishment  of  the  English  colonies  in 
America,  the  matter  of  a  suitable  exchange-medium  attracted 
public  attention,  and  was  found  to  be  attended  with  difficul¬ 
ties.  The  colonists  drew  all  their  supplies  from  the  mother 
country,  and  for  a  long  time  had  but  few  native  products 


378 


POLITICAL  ECONOMY. 


to  export  in  return,  and  consequently  there  was  a  constant 
tendency  in  the  coin  which  reached  them  to  flow  off  again 
to  England  in  payment  of  these  debts.  Unluckily  the  colo¬ 
nists  were  under  the  impression  that  they  could  not  afford 
to  use  good  silver  money  in  their  small  domestic  exchanges, 
and  this  inclined  them  the  more  readily  to  penny-wise  but 
pound-foolish  substitutes.  Unluckily  also  they  had  an  ink¬ 
ling  of  the  way  in  which  Gresham’s  law  works  at  all  times; 
and  in  these  two  things  we  have  a  perfect  key  to  unlock  the 
early  monetary  history  of  the  country.  Rhode  Island  in 
1749  expressed  the  whole  thought  of  the  colonies  on  the 
money-question:  44  This  will  always  he  the  case  with  infant 
countries  that  do  not  raise  so  much  as  they  consume ,  either 
to  have  no  money ,  or  if  they  have  it ,  it  must  he  worse  than 
that  of  their  richer  neighbors  to  compel  it  to  stay  with  them.” 
This  position  involves  an  economical  fallacy,  and,  therefore, 
a  great  practical  mistake:  no  country  can  “consume”  in 
the  long  run  more  than  it  “raises,”  because  it  must  pay 
sooner  or  later  for  all  it  buys ;  and  a  money  kept  equal  to 
4  4  that  of  their  richer  neighbors  ’  ’  keeps  prices  low,  and  thus 
discourages  importations  and  encourages  exportations.  This 
tends  to  make  what  is  “raised”  equal  to  what  is  44  con¬ 
sumed,”  using  both  words  in  the  Rhode  Island  sense.  One 
of  the  miseries  of  cheap  money  was  then,  is  now,  and  always 
will  be,  that  it  makes  the  misguided  country  using  it  a  good 
market  for  foreigners  to  sell  in  and  a  bad  market  to  buy 
from.  Of  course  the  colonists  at  first  resorted  to  barter  in 
part,  and  then  to  local  and  legalized  mone}'S  cheaper  than 
specie,  of  which  tobacco  and  rice  in  the  southern  colonies, 
and  corn  and  cattle  in  the  northern  for  large  transactions 
and  “wampum”  and  bullets  for  small,  were  the  chief. 
Wampum  was  of  two  kinds,  black  and  white,  both  of  parts 
of  shells,  and  six  white  beads  or  three  black  ones  were  reck¬ 
oned  equal  to  a  penny  sterling ;  and  bullets  were  legal  tender 
in  Massachusetts  in  1G35  for  sums  under  one  shilling  at  a 
farthing  apiece. 


MONEY  IN  THE  UNITED  STATES. 


379 


Under  the  false  impression  that  only  money  made  inferior 
to  sterling  would  stay  in  the  colony,  Massachusetts  began  to 
mint  in  1G52  silver  shillings  and  sixpences  and  threepences 
purposely  debased  in  weight  (including  seigniorage)  22  °J0 
below  sterling.  The  silver  for  these  coins  came  in  mostly 
from  the  trade  with  the  West  Indies,  to  which  were  now 
shipped  peltry,  fish,  various  forms  of  lumber,  beef,  pork, 
pease,  cattle,  and  horses,  for  which  they  took  mainly  sugar, 
molasses,  rum,  and  silver.  “  They  would  have  brought  more 
silver  and  less  rum  and  other  merchandise ,  had  the  first  been 
in  greater  request  at  home.11  (Bronson.)  John  Hull,  the 
mintmaster,  took  out  15  pence  out  of  every  £  for  his  own 
pay,  and  grew  rich  by  the  process.  That  was  over  6  °f0. 
In  1662,  a  twopenny  piece  was  added  to  the  series,  and  the 
mint  existed  (sometimes  idle)  for  over  30  years,  but  all  the 
pieces  coined  bore  the  dates  of  1652  or  1662.  This  paucity 
of  dates  is  commonly  and  perhaps  properly  accounted  for 
on  the  ground  that  coining  in  the  colony  was  contrary  to  the 
prerogative  of  the  Crown  ;  but  it  is  to  be  added  that  John 
Hull  was  not  a  man  to  get  new  dies  so  long  as  the  old  ones 
would  answer  his  purpose.  The  law  forbade  the  exportation 
of  these  pieces  under  the  penalty  of  thereby  forfeiting  one’s 
whole  visible  estate  ;  because,  though  this  money  was  much 
worse  than  sterling,  there  was  a  worse  money  than  this  circu¬ 
lating  in  the  colony,  and  Gresham’s  law  began  to  crowd  it 
from  the  first,  and  to  some  extent  it  was  both  smuggled  out 
and  clipped  down.  But  it  furnished  a  sort  of  standard,  nev¬ 
ertheless,  and  tended  to  keep  the  later  paper  money  within 
distant  sight  of  the  silver,  and  became  the  reason  why  in 
New  England  there  were  six  shillings  to  the  dollar.  The 
Spanish  pillar  dollar,  which  was  the  standard  in  the  West 
Indies,  was  worth  4s.  0>d.  sterling ;  and  in  1672  a  law  was 
passed  in  Massachusetts  allowing  these  dollars  to  circulate  - 
at  6s.  provincial,  which  was  a  discount  on  the  home  pieces 
of  25  °J0.  Ever  after  there  were  six  shillings  in  a  dollar  in 
New  England.  Hull’s  money  is  called  the  “  pine-tree  ”  com- 


380 


POLITICAL  ECONOMY. 


age,  and  was  the  only  coin  money  minted  in  the  country  till 
after  Independence. 

In  1690  Massachusetts  set  the  first  example,  which  was 
imitated  20  years  later  by  the  other  New  England  Colonies 
and  by  New  York  and  New  Jersey,  of  issuing  “bills  of 
credit  ’  ’  to  meet  the  expenses  of  the  two  disastrous  Expedi¬ 
tions  against  the  French  in  Canada.  The  bills  were  not 
made  legal  tender  in  private  payments,  and  pains  were  taken 
to  keep  up  their  credit,  but  they  were  depreciated  from  the 
first,  and  came  to  be  very  much  depreciated.  Massachusetts 
and  Connecticut  made  their  bills  receivable  for  taxes  at  a 
premium  of  5%,  laid  special  taxes  for  their  redemption,  and 
from  time  to  time  called  in  portions  of  the  issues.  In  1718 
Connecticut  enacted  that  a  debtor  tendering  these  bills  should 
not  be  liable  to  legal  execution  on  his  estate  or  person  for 
the  payment  of  that  debt,  an  expedient,  as  we  have  seen, 
resorted  to  by  England  in  the  great  Bank  restriction  of  1 797— 
1821.  These  early  New  England  bills  bore  no  interest, 
were  not  loaned  out  by  the  colony,  and  were  a  convenient 
though  dangerous  means  of  anticipating  the  income  of  future 
taxes;  but  after  1712  a  paper  money  scheme  originating  in 
South  Carolina  came  into  favor  in  the  colonies,  which  was, 
to  open  loan-offices  for  the  issue  of  colony  bills  on  the  mort¬ 
gage  of  land,  the  interest  on  which  helped  to  pay  the  colony 
expenses,  the  principal  of  which  at  first  and  on  being  paid 
back  and  reloanecl  furnished  a  capital  to  borrowers,  while 
the  bills  themselves  furnished  a  money  for  the  people. 
Pennsylvania  had  the  best  luck  with  this  scheme  of  all  the 
colonies  which  tried  it :  as  early  as  1729  Benjamin  Franklin 
became  thoroughly  possessed  of  John  Law’s  notion,  that 
paper  money  may  be  “  based”  on  land  or  other  valuables, 
sajung  in  a  pamphlet  of  that  year  that  “  bills  issued  upon 
land  are  in  effect  coined  land:  ”  Pennsylvania  bills  neverthe¬ 
less  were  at  46  °J0  discount  in  1748.  Some  of  the  later  col¬ 
ony  bills  bore  interest,  some  were  of  a  “new-tenor  ”  so-called 
designed  to  take  up  the  old  ones,  Virginia  in  1755  made  hers 


MONEY  IN  THE  UNITED  STATES. 


881 


A  legal  tender  for  debts,  some  were  issued  in  bounties  for 
Indian  scalps  and  for  various  manufactures  and  fisheries, 
but  all  ran  one  road  of  depreciation  and  gave  birth  to  one 
set  of  results.  Connecticut  managed  her  issues  the  best  of 
the  colonies,  and  yet  Bronson  says  of  the  state  of  things 
in  that  colony  in  1749,  “  Trade  was  embarrassed  arid  the 
utmost  confusion  prevailed :  no  safe  estimate  could  be  made 
as  to  the  future ,  and  credit  was  almost  at  an  end:  no  man 
could  safely  enter  into  a  contract ,  which  was  to  be  discharged 
in  money  at  a  subsequent  date :  prudence  and  sagacity  in  the 
management  of  business  were  without  their  customary  re¬ 
ward .” 

Under  the  good  lead  of  Thomas  Hutchinson,  afterwards 
Governor,  Massachusetts  determined  in  1749  to  abandon 
paper  money  altogether.  She  had  tried  it  for  sixty  years, 
and  found  it  fluctuating  and  troublesome.  Bad  as  her  own 
money  had  been,  that  of  her  neighbors  had  been  worse. 
Gresham’s  law  was  busy  then,  as  always  ;  and  Rhode  Island 
money,  the  worst  in  the  New  England  colonies,  had  the 
most  extensive  circulation.  The  governor  of  Massachusetts 
said  in  1744,  that  of  £400,000  Rhode  Island  money  in  cir 
culation,  £380,000  were  in  Massachusetts.  The  latter  tried 
to  persuade  her  sister  colonies  in  1743  to  abandon  paper 
money  in  common ;  but  they  would  not  listen  to  it ;  and  so 
in  1749  she  acted  alone.  Parliament  had  voted  to  ransom 
Louisburg  from  the  New  England  colonies,  which  had  cap¬ 
tured  it  from  France  in  the  name  of  the  crown ;  and  the 
share  falling  to  Massachusetts  was  £138,649  sterling,  and 
this  was  shipped  to  the  colony  in  coin.  The  then  ruling 
exchange  of  Massachusetts  bills  in  sterling  silver  was  eleven 
for  one,  and  at  that  rate  the  outstanding  bills  were  redeemed. 
That  colony  became  for  a  time  the  u  silver  colony.”  Busi¬ 
ness  rapidly  and  steadily  revived ;  and  Rhode  Island  and 
New  Hampshire  found  their  trade  transferred  thither,  and 
their  paper  money  heavily  depreciated  in  contact  and  con¬ 
trast  with  the  newly  current  silver. 


382 


POLITICAL  ECONOMY. 


In  1751  Parliament  forbade  the  governors  of  the  New 
England  colonies  to  give  assent  to  any  act  by  which  bills  of 
credit  should  be  created,  re-issued,  or  the  time  of  their 
redemption  extended  ;  but  still  permitted  issues  in  the  form 
of  exchequer  bills  bearing  interest,  but  these  were  to  run 
not  over  two  years  or  in  case  of  war  four  years,  and  taxes 
must  be  laid  sufficient  to  sink  the  notes  at  maturity,  and  in 
no  case  must  they  be  made  a  legal  tender  for  debts.  Such 
notes  as  these  were  not  specially  objectionable :  the  old  notes 
kept  tumbling  :  Connecticut  bills  in  1755  were  13  to  1  in  silver, 
and  the  Rhode  Island  courts  in  1763  made  £7  in  old- tenor 
bills  equal  to  one  Spanish  milled  dollar,  or  4s.  6cL  sterling. 
The  same  year  Parliament  signalized  the  conquest  of  Canada 
and  the  conclusion  of  peace  with  France  by  forbidding  all 
the  colonies  to  issue  any  more  bills  of  any  kind  ;  but  Massa¬ 
chusetts  was  the  only  colony  which  had  gotten  entirely  rid 
of  its  paper  money  when  the  Revolution  broke  out  twelve 
years  later,  she  was  wholly  out  of  debt  also,  and  she  was 
the  strongest  of  the  colonies  to  grapple  with  the  mother 
country,  —  advantages  owed  largely  to  her  wise  resolution 
of  1749.  Under  these  circumstances  it  seems  patriotic  and 
therefore  praiseworthy,  that  she  agreed  in  the  spring  of  1775 
with  representatives  of  Connecticut  and  Rhode  Island  to 
allow  their  paper  money  to  pass  current  with  her  people,  and 
also  authorized  the  issue  of  new  colonial  bills  of  her  own  in 
sums  small  enough  to  circulate  as  money. 

In  June,  1775,  a  week  after  Bunker  Hill,  the  Continental 
Congress  began  its  fiscal  career  by  voting  to  emit  $2,000,000 
in  new  bills  of  credit  issued  on  the  faith  of  the  “  Continent/ * 
but  referred  as  to  payment  to  the  separate  colonies  in  the 
ratio  of  their  supposed  gross  population.  The  best  excuse 
for  this  action  is  the  one  urged  by  the  Congress  itself  to  the 
French  minister:  “ America ,  never  having  been  much  taxed 
nor  for  a  continued  length  of  time ,  being  ivithout  fixed  gov¬ 
ernment  and  contending  against  what  was  once  the  lawful 
authority,  had  no  funds  to  support  the  war;  and ,  the  contest 


MONEY  IN  THE  UNITED  STATES. 


883 


being  upon  the  very  question  of  taxation ,  the  levying  of  imposts , 
unless  from  the  last  7iecessity ,  ivould  have  been  madness.  To 
borrow  from  individuals  without  any  visible  means  of  repaying 
them ,  while  the  loss  was  certain  from  ill  success ,  ivas  visionary. 
A  measure ,  therefore ,  which  had  been  early  adopted ,  arid  thence 
became  familiar  to  the  people ,  was  pursued.  This  was  the 
issuing  of  paper  notes  representing  specie  for  the  redemption 
of  which  the  public  faith  was  pledged.’ ’  One  phrase  only 
of  this  clear  passage  is  cloudy,  “paper  notes  representing 
specie;”  John  Law  cast  some  haze  over  the  Continental 
Congress ;  the  wording  of  the  notes  is  curiously  obscure, 
“  this  bill  entitles  the  bearer  to  receive  ten  Spanish  milled 
dollars the  notes  in  no  sense  represented  specie,  they 
virtually  promised  to  pay  it  to  bearer ;  unluckily,  the  party 
issuing  the  promise  was  not  the  party  bound  to  pay,  the 
continent  promised  while  the  colonies  were  expected  to  fulfil ; 
unluckily  also,  no  good  provision  was  made  by  either  party 
for  the  fulfilment  of  these  promises ;  and  consequently  the 
vice  of  the  continental  money  was,  that  there  was  no  economi¬ 
cal  limitation  of  their  supply .  The  notes  were  not  amenable 
to  the  law  of  supply  and  demand  in  the  ordinary  way,  and 
hence  they  could  not  long  maintain  a  steady  value.  In  a 
certain  remote  sense  they  were  indeed  amenable  to  that  law, 
which  presided  over  the  decline  and  final  extinction  of  their 
value.  These  issues,  too,  came  into  competition  with  the 
revolutionary  issues  of  eleven  separate  colonies,  New  Hamp¬ 
shire  and  Georgia  issuing  none,  the  total  of  which  in  1775-83 
was  $209,524,776,  so  that  this  further  increase  of  supply 
depreciated  in  comparison  with  silver  both  classes  of  noles. 
Eighteen  months,  however,  had  passed,  and  $20,000,000 
continental  had  been  authorized,  besides  large  local  issues, 
before  a  marked  depreciation  begau. 

As  the  issues  increased,  as  it  became  evident  to  all  that 
no  provision  was  made  to  keep  the  promises,  and  as  Burgoyne 
was  prosperously  advancing  from  Canada  towards  New  York, 
the  middle  of  1777  saw  a  general  fall  of  the  notes,  not  the 


384 


POLITICAL  ECONOMY. 


same  in  all  the  States  at  the  same  time,  and  not  at  all  in 
strict  ratio  with  the  increase  of  the  notes.  At  the  close  of 
1777,  the  average  depreciation  from  silver  was  not  far  from 
3  to  1  ;  at  the  close  of  1778,  it  was  not  far  from  6  to  1  ;  at 
the  end  of  1779,  it  was  about  28  to  1  ;  the  press  then  rested, 
after  Congress  had  put  out  nominally  $200,000,000  but  actu¬ 
ally  about  $40,000,000  more  than  that,  though  the  ceasing 
of  issue  did  not  arrest  the  cascade  of  discredit ;  early  in  1  780 
Congress  advised  the  States  to  repeal  their  laws  making  the 
bills  a  legal  tender  for  debts,  and  devised  the  scheme  of 
“new  tenor,”  by  which  the  old  bills  might  be  taken  up  in 
a  new  paper  bearing  interest  at  6  %,  in  a  ratio  of  40  to  1, 
to  which  the  old  bills  had  now  sunk  in  comparison  with  silver, 
and  $88,000,000  of  the  old  paper  were  thus  redeemed,  New 
York  and  Massachusetts  and  Rhode  Island  taking  up  their 
entire  quota  in  this  way  ;  but  the  “  new  tenor  ”  money  never 
came  into  much  circulation,  and  old  and  new  alike  dropped 
out  altogether  in  the  spring  of  1781,  when  the  old  notes, 
if  passed  at  all,  were  passing  at  about  300  to  1.  The  conti¬ 
nental  army  in  camp  at  Newburgh  combined  to  refuse  to 
receive  them  on  any  terms  ;  and  President  Reed  gives  a 
pleasing  picture  of  the  way  in  which  they  passed  out  in 
Pennsylvania  :  —  “  At  once ,  as  if  by  that  force  which  in  days 
of  ignorance  would  be  ascribed  to  enchantment ,  all  dealings 
in  paper  ceased ;  necessity  brought  out  the  gold  and  silver , 
a  fortunate  trade  opened  at  the  same  time  to  the  Havana  for 
flour,  all  restrictions  were  taken  off,  and  the  Mexican  dollars 
flowed  in  by  thousands ;  this  supported  the  sinking  spirits  of 
those  who  would  have  been  discontented  and  uneasy,  and  in 
a  few  days  specie  became  the  universal  medium  a7id  so  con~ 
tinues.”  The  country  found  no  more  lack  of  silver  for 
money  than  Massachusetts  had  found  in  1749.  Assuming 
that  only  $200,000,000  continental  had  been  issued,  Jefferson 
estimated  that  the  nation  realized  from  them  $36,367,720  in 
specie  value,  or  18  %  of  the  nominal  value. 

Ill  effects  of  every  kind  came  in  the  wake  of  this  poor 


MONEY  IN  THE  UNITED  STATES. 


385 


money.  Rising  prices  are  ever  the  gauge  of  a  falling  money  ; 
rising  prices  then  as  ever  gave  birth  to  rash  speculations  ; 
committees  of  safety  undertook  angrily  to  punish,  under  the 
names  of  “  forestalled  ”  and  “  engrossers  ”  the  speculators 
who  bought  commodities  for  a  further  rise ;  there  was  the 
confusion  of  contracts  usual  under  a  variable  money,  gains 
for  the  artful  and  unscrupulous,  and  envy  and  sufferings  for 
the  poor;  Shays  Rebellion  in  Massachusetts  in  1786  was 
a  natural  outgrowth  of  this  fearful  injustice  ;  debtors  availed 
themselves  of  the  legal  tender  quality  of  the  bills  to  pay  only 
•g1^  or  ^  of  what  was  due ;  the  morals  of  all  classes  of  the 
people  became  corrupted  through  constantly  calling  things 
that  were  not  as  though  they  were ;  peculations  pervaded 
society  ;  Congress  itself  used  wretched  sophistries  in  resolv¬ 
ing  that  the  money  “  ought  to  gxiss  current  in  all  payments, 
trade ,  and  dealings ,  and  be  deemed  egual  in  value  to  the  same 
nominal  sums  in  Spanish  dollars ,”  and  in  lauding  the  paper 
as  the  only  kind  of  money  “  which  cannot  take  to  itself  icings 
andjly  away!  It  remains  with  us,  it  will  not  forsake  us,  it 
is  always  ready  at  hand  for  the  purposes  of  commerce ,  and 
every  industrious  man  can  find  it;  ”  John  Jay,  and  man* 
others,  who  knew  better,  helped  to  make  current  such  non 
sense  as  this  ;  and  then,  a  little  later,  swallowing  all  its  brav'. 
words,  Congress  repudiated  for  its  part,  and  advised  in  effort 
the  States  to  repudiate,  all  obligations  to  redeem  these  bills. 
Their  volume  had  been  swelled  both  by  native  and  by  British 
counterfeiters,  and  there  was  almost  no  crime  to  which  their 
issue  and  depreciation  did  not  contribute.  Noah  Webster, 
a  clear-headed  essayist  of  the  time,  said  of  this  paper  money  : 
“■  We  have  suffered  more  from  this  cause  than  from  every  other 
cause  or  calamity.  It  has  killed  more  men,  corrupted  the 
choicest  interests  of  our  country  more,  and  done  more  injustice 
than  even  the  arms  and  artifices  of  our  enemy.”  Washing 
ton,  himself  as  a  creditor  the  victim  of  that  form  of  social 
robbery  involved  in  a  depreciated  legal-tender,  unfortunately 
did  not  understand  the  m}rsteries  or  rather  the  simplicities  of 


386 


POLITICAL  ECONOMY . 


paper  money,  and  thus  vented  his  wrath  towards  the  wrong 
objects  :  “  It  gives  me  sincere  pleasure  to  find  that  the  Assem¬ 
bly  is  so  well  disposed  to  second  your  endeavors  to  brmg  those 
murderers  of  our  cause ,  the  monopolizers ,  forestallers ,  and 
engrossers ,  to  condign  punishment .  It  is  much  to  be  lamented 
that  each  State ,  long  ere  this ,  7ms  not  hunted  them  down  as 
pests  to  society ,  and  the  greatest  enemies  we  have  to  the  happi¬ 
ness  of  America.  I  would  to  God  that  some  one  of  the  more 
atrocious  in  each  State  was  hung  in  gibbets  upon  a  galloios 
five  times  as  high  as  the  one  prepared  for  Haman !  No  pun¬ 
ishment ,  in  my  opinion ,  is  too  severe  for  the  man  who  can 
build  his  greatness  upon  his  country’s  ruin.” 

At  the  very  juncture  of  the  collapse  of  the  Continental 
money,  the  rudiments  of  a  better  system  appeared.  For 
nearly  a  hundred  years  the  Bank  of  England  had  been  issu¬ 
ing  paper  payable  on  demand  in  gold  and  silver ;  and  Alex¬ 
ander  Hamilton,  a  native  of  the  West  Indies,  of  Scotch  and 
Huguenot  parentage,  but  educated  in  New  York  and  an  aide- 
de-camp  of  Washington  with  the  rank  of  colonel,  who  had 
been  a  student  of  English  finance,  thought  that  something 
similar  might  be  done  with  advantage  in  America.  At  the 
opening  of  1780,  when  he  was  just  turned  of  twenty-three, 
he  wrote  a  letter  to  Robert  Morris,  a  rich  and  influential 
member  of  the  Congress,  even  then  talked  of  for  Continental 
Financier  though  he  did  not  accept  that  office  till  May  7, 
1781,  in  which  after  showing  clearly  the  causes  of  the  decline 
of  the  old  money  and  the  necessity  of  a  foreign  loan,  he 
furnished  the  outlines  of  a  Continental  Bank,  by  means  of 
which  the  loan  when  obtained  might  be  so  applied  as  to 
re-establish  the  fallen  public  credit  and  become  the  basis  of 
a  redeemable  paper  money.  The  root  of  his  suggestions 
was,  to  unite  the  private  interests  of  moneyed  men  with  the 
interests  of  the  public  credit  and  of  a  new  national  paper 
money  payable  on  demand  in  good  silver.  The  scheme  was, 
to  establish  a  Bank  to  be  the  fiscal  agent  of  the  Government ; 
to  deposit  in  it  the  cash  proceeds  of  the  foreign  loan,  and 


MONEY  IN  THE  UNITED  STATES. 


387 


the  product  of  the  continental  taxes  as  the}T  were  gradually 
paid  in  ;  to  issue  shares  of  stock,  one  half  of  which  were  to  be 
bought  by  individuals  and  the  proceeds  turned  into  the  bank, 
and  the  other  half  to  be  held  by  the  government  with  half 
of  the  profits  of  the  banking ;  then  to  issue  bills  payable  in 
specie  on  demand,  resting  back  for  their  redemption  on  the 
loan,  the  subscriptions,  and  the  taxes  ;  and  thus  to  rely  on 
the  subscribers  to  the  stock,  the  holders  of  the  bills,  and  the 
community  in  this  way  provided  with  a  sound  paper  for  com¬ 
mercial  uses,  to  uphold  the  credit  of  the  bank  and  of  the 
Government.  This  is  believed  to  be  the  first  practical  sug 
gestion  of  a  specie-paying  bank  in  America. 

We  have  no  call  to  follow  Robert  Morris  in  his  perplexing 
trials  as  continental  Financier.  Late  in  1781  he  presented 
to  Congress  a  plan  for  a  continental  bank,  which  embodied 
in  part  and  on  a  very  small  scale  the  ideas  of  Hamilton. 
On  the  last  day  of  that  year  Congress  chartered  the  u  Bank 
of  North  America,”  to  be  located  in  Philadelphia,  on  a  cap¬ 
ital  stock  of  $400,000,  nearly  two-thirds  of  which  was  sub¬ 
scribed  by  Morris  in  behalf  of  the  Government,  because  the 
distrust  with  which  paper  money  had  come  to  be  regarded 
deterred  individuals  from  putting  their  money  in.  Capitalists 
did  not  believe  there  would  be  any  dividends,  and  the  people 
were  afraid  the  paper  money  would  depreciate  in  their  hands. 
A  week  after  the  charter  the  bank  went  into  operation  under 
these  unfavorable  circumstances.  It  had  only  $40,000  of 
specie  in  reserve,  and  so  great  was  the  fear  in  the  first  and 
most  critical  days  of  its  life  that  all  this  would  be  drawn  out 
by  the  presentation  for  redemption  of  the  bills  cautiously 
issued  in  loans,  that  friends  of  the  bank  were  employed  to 
follow  those  who  thus  took  out  specie  and  urge  them  to  re¬ 
turn  it.  Morris  had  enlisted  in  behalf  of  the  enterprise  his 
personal  and  business  associates  in  Philadelphia ;  he  wTote 
letters  to  the  Governors  of  the  States  and  many  other  prom¬ 
inent  persons,  urging  subscriptions  to  the  stock,  sketching 
the  advantages  of  a  specie-paying  bank,  and  trying  to  pave 


388 


POLITICAL  ECONOMY. 


the  way  for  the  circulation  of  the  bills  ;  but  these  were  in  the 
beginning  at  a  discount  in  the  Eastern  States  of  10  to  15%, 
and  the  Southern  States  furnished  no  subscribers  to  the  stock. 
Morris’s  efforts,  however,  soon  checked  the  depreciation,  and 
the  bills  rose  to  par.  Pennsylvania  granted  the  bank  a  State 
charter  soon  after  Congress  had  given  it  a  national  one,  then 
repealed  and  renewed  its  charter  more  than  once,  till  in  March, 
1787,  the  State  re-incorporated  the  concern  in  such  different 
terms  that  thereafter  it  was  no  longer  considered  as  a  national 
institution.  In  the  mean  time,  the  bills  became  popular  and 
the  banking  so  profitable,  that  dividends  on  the  stock  from 
12  to  16%  were  earned  yearly.  Who  ever  heard  of  capital¬ 
ists  who  could  resist  16%  ?  Schemes  for  another  bank  were 
in  agitation,  “  two  shops  to  go  to  ”  became  the  cry  in  Phila¬ 
delphia,  and  to  head  off  rivalry  the  books  of  the  bank  were 
opened  for  new  subscriptions  in  1784  and  the  stock  went  up 
without  difficulty  from  $400,000  to  $2,000,000.  That  year 
Morris  ceased  to  be  national  financier,  and  not  long  after  the 
bank  ceased  to  be  national,  but  it  continued  as  a  State  bank, 
and  celebrated  its  centennial  on  the  last  day  of  1881  by  the 
publication  of  a  detailed  history  of  itself  from  the  beginning. 

Eight  days  after  the  opening  of  the  Bank  of  North  America 
for  business,  Robert  Morris  helped  and  perhaps  guided  by 
his  assistant  financier,  Gouverneur  Morris,  presented  to  the 
old  Congress  the  first  plan  of  a  decimal  coinage  ever  brought 
forward.  So  far  the  Spanish  milled  dollar  had  been  the 
Revolutionary  unit  of  money  :  it  was  time  now  to  provide  for 
a  new  national  coinage.  There  are  three  possible  ways  of 
arranging  a  decimal  system  of  coins :  first,  to  have  a  very 
small  unit,  and  proceed  only  by  decimal  multiplication ; 
second,  to  have  a  very  large  unit,  and  then  go  by  division 
only  ;  and  third,  to  have  a  moderate  unit,  and  proceed  deci¬ 
mally  in  both  directions.  Morris  chose  the  first  of  these, 
and  preferred  a  single  standard  of  silver,  and  proposed  as 
the  unit  of  the  new  coinage  a  quarter  grain  of  pure  silver. 
The  lowest  silver  coin  should  be  composed  of  100  of  these 


MONEY  IN  THE  UNITED  STATES. 


889 


units,  and  be  called  a  Cent ;  the  next  of  500,  and  be  called 
a  Quint;  and  the  last  of  1,000,  and  be  called  a  Mark.  These 
pieces  would  weigh  respectively  25,  125,  and  250  grains  of 
pure  silver,  and  should  bo  alloyed  each  by  2,  10,  and  20 
grains  of  copper.  Besides  the  three  silver  pieces,  there 
were  to  be  two  copper  pieces  of  the  value  of  five  and  eight 
of  the  units,  to  be  called  a  Five  and  an  Eight,  by  which 
device  the  new  coppers  would  come  into  harmony  with  the 
pennies  of  varying  value  in  the  different  States. 

Congress  referred  this  scheme  to  a  Committee,  of  which 
Jefferson  was  the  chairman,  who  praised  its  ingenuity  and 
“  ease  of  adoption  with  the  people,”  but  strongly  criticised 
the  unit  as  too  small,  and  proposed  in  turn  the  dollar  as  the 
unit.  Morris  afterwards  modified  his  plan  in  favor  of  a  large 
unit  and  of  a  double  standard,  still  keeping  to  the  decimal 
idea;  but  ceasing  to  be  financier  in  1784,  and  Congress 
inclining  to  follow  the  lead  of  Jefferson,  the  whole  subject 
was  referred  to  the  latter,  whose  plan  was  adopted  in  1786, 
and  consisted  of  both  denominations  and  coins  called  Eagles, 
Dollars ,  Dimes ,  and  Cents.  Each  of  these  was  to  be  sub¬ 
divided  into  halves,  and  the  dime  was  also  to  be  doubled,  the 
binary  system  being  thus  recognized  equally  with  the  decimal, 
which  was  borrowed  from  Morris,  as  was  also  the  denomina¬ 
tion  cent  though  in  a  different  sense.  The  same  year  an  act¬ 
ual  coinage  of  copper  cents,  our  first  national  coins,  took  place 
under  State  authority  in  Vermont,  Connecticut,  and  New  Jer¬ 
sey  ;  and  Congress  also  authorized  the  establishment  of  a  mint, 
and  contracted  for  300  tons  of  federal  cents  to  be  struck, 
Borne  of  which  were  coined  at  the  Connecticut  mint  in  New 
Haven,  and  a  few  of  them  at  the  Vermont  mint  at  Rupert. 

Three  years  later  government  went  into  operation  under 
the  present  Constitution,  and  the  action  of  the  old  Congress 
as  to  coins  was  reported  to  the  new,  and  the  whole  matter 
was  then  referred  to  Alexander  Hamilton  as  Secretary  of  the 
Treasury.  He  recommended  the  re-adoption  of  Jefferson’s 
plan  of  a  double  standard,  of  coin-denominations,  and  of 


890 


POLITICAL  ECONOMY. 


the  Spanish  milled  dollar  as  the  unit,  together  with  some 
minor  proposals  of  his  own.  He  had  found  that  the  Spanish 
dollar  contained  371.25  grains  of  pure  silver,  and  advised 
that  the  new  silver  dollar  should  contain  the  same.  As  he 
supposed  that  gold  was  then  worth  fifteen  times  as  much  as 
silver,  he  advised  consequently  that  the  gold  dollar  should 
contain  24.75  grains  pure,  and  that  both  dollars  should  be 
alloyed  at  the  English  rate  of  y1^,  making  the  silver  dollar 
weigh  405  grains  standard  and  the  gold  dollar  27  grains 
standard.  The  Act  of  Congress  in  1792,  that  established 
the  Mint  of  the  United  States,  appointed  the  coins  very 
nearly  as  the  Secretary  had  advised.  It  adopted  his  gold 
dollar  unchanged,  with  its  multiples,  the  eagle ,  half -eagle, 
and  quarter-eagle ,  in  gold  ;  the  silver  dollar  was  alloyed  more 
than  he  advised,  that  is,  by  44.75  grains  instead  of  33.75, 
and  so  weighed  416  grains  standard,  but  had  the  371.25 
grains  pure,  which  has  been  the  exact  content  of  the  silver 
dollar  ever  since.  The  subdivisions  of  this  dollar,  half- 
dollars,  quarter -dollars,  dimes ,  and  half-dimes ,  were  at  that 
time  proportional  in  purity  and  weight  to  the  unit.  Thus  it 
will  be  seen  that  the  full  credit  of  introducing  a  national  and 
decimal  system  of  money  is  due  not  to  one  man,  but  to  three 
or  four ;  that  all  three  of  the  possible  ways  of  arranging 
such  a  system  were  recommended  in  turn,  and  the  third 
finally  adopted ;  and  that,  while  the  undoubted  superiority 
of  the  decimal  system  in  an  upward  scale  is  fully  recognized, 
the  natural  tendency  of  men’s  minds  to  subdivide  into  halves, 
quarters,  eighths,  and  so  on,  rather  than  into  tenths,  hun¬ 
dredths,  and  so  on,  is  recognized  also.  Eighty  years  have 
not  yet  naturalized  among  us  the  dime  and  mill,  nor  expelled 
the  York  shilling,  the  eighth  of  a  dollar. 

The  terms  of  our  monetary  system  may  properly  delay  us 
for  a  moment.  The  word  dollar  is  derived  from  a  German 
word  which  means  valley ,  and  was  first  applied  to  coins  in 
the  mining  region  of  Bohemia,  at  a  place  called  Joachims- 
thal,  where  silver  pieces  of  one  ounce  .’weight  were  coined 


MONEY  IN  THE  UNITED  STATES. 


891 


about  1520,  and  were  called  Joachimsthaler,  and  then  for 
shortness  thaler ,  whence  dalera  in  Spanish,  and  in  English 
dollar.  The  thaler  has  remained  a  German  money  of  ac¬ 
count  until  our  own  time,  and  the  Spanish  dalera  became  so 
famous  in  the  commercial  world,  so  familiar  to  our  fathers 
in  their  dealings  with  the  West  Indies  and  other  Spanish 
colonies,  that  Congress  adopted  both  its  name  and  its  weight 
of  pure  silver.  The  present  Mexican  dollar  is  a  lineal  de¬ 
scendant  of  the  old  Spanish  coin,  though  it  contains  six 
grains  more  of  pure  silver.  The  new  “  trade  dollar,”  de¬ 
signed  for  export  only,  and  not  legal  tender  at  all,  contains 
6£  more  grains  of  pure  silver  than  the  standard  silver  dollar, 
that  is,  378  grains.  It  is  hardly  necessary  to  add  that  dime 
is  a  corruption  of  the  Latin  decern ,  ten  ;  that  cent  is  a  con¬ 
traction  of  the  Latin  centum ,  hundred ;  and  that  mill  is  a 
contraction  of  the  Latin  mille,  thousand. 

There  was  a  curious  debate  in  Congress  at  the  time  as  to 
the  devices  which  the  coins  should  bear.  As  the  bill  came 
from  the  Senate,  where  it  originated,  the  gold  and  silver 
pieces  wrere  to  have  on  one  side  the  figure  of  the  eagle, 
which  the  Continental  Congress  long  before  had  adopted  as 
the  national  emblem,  and  near  this,  the  legend  “United 
States  of  America.”  This  was  for  the  obverse  of  the  coin, 
and  so  far  nobody  had  any  objection.  For  the  reverse,  the 
bill  proposed  that,  in  accordance  with  the  usages  of  all 
nations  from  the  time  of  the  earliest  known  coinage,  the 
impression  or  representation  of  the  head  of  the  President 
of  the  United  States  for  the  time  being,  together  with  his 
name,  order  of  succession  in  the  presidency,  and  the  date  of 
the  coinage,  should  be  stamped.  This  was  strongly  objected 
to  in  the  House,  as  savoring  of  monarchy.  The  President’s 
head  on  the  coin  was  deemed  by  some  a  dangerous  thing  for 
the  republic,  and  the  proposal  led  to  a  sarcastic  and  even 
acrimonious  debate,  and  was  at  length  defeated  in  the  House 
by  a  vote  of  twenty-six  to  twenty-two,  in  which  the  Senate 
was  afterwards  obliged  to  concur,  and  a  proposition  made 


392 


POLITICAL  ECONOMY. 


by  Key  of  Maryland  was  carried,  to  substitute  a  figure  of 
Liberty  instead  of  the  obnoxious  head  of  the  President ;  but 
under  precisely  what  sort  of  a  figure  to  represent  Liberty 
was  then  the  difficulty,  and  at  the  next  session  Elias  Boudi- 
not  of  New  Jersey,  afterwards  the  director  of  the  mint, 
endeavored  to  get  substituted  for  the  emblematic  figure  of 
Liberty  the  head  of  Columbus,  but  in  vain ;  the  Republican 
party  so-called  at  the  time  was  determined  that  the  figure  of 
Liberty  in  some  form  should  be  stamped  on  the  coins,  and 
so  it  has  been  from  that  day  to  this. 

The  original  Mint  of  the  United  States  was  established  at 
Philadelphia  in  1792,  and  the  first  federal  coins  of  silver 
were  issued  in  1794,  of  gold  in  1795.  While  it  was  still 
doubtful  where  the  ultimate  seat  of  the  national  government 
would  be  placed,  the  citizens  of  that  beautiful  city  were 
strongly  in  hopes  of  being  able  to  persuade  Congress  per¬ 
manently  to  abide  in  their  town,  in  which  the  old  continental 
body  had  first  met,  in  which  Independence  had  been  declared, 
and  which,  more  than  any  other,  w^as  popularly  regarded  as 
the  headquarters  of  the  national  Union.  A  notable  instance 
of  log-rolling  legislation,  the  first  in  our  history,  transferred 
the  capital  of  the  country  to  the  banks  of  the  Potomac  ;  but 
the  good  people  of  the  Quaker  City  have  nevertheless  always 
retained  the  Mint,  as  a  memorial  of  their  earlier  position  in 
the  history  of  the  government.  By  the  law  of  1873,  that 
mint,  till  then  the  head  establishment  for  the  whole  country, 
and  the  later  mints  till  then  called  u  branch-mints,”  and  the 
Assay-Offices  for  the  stamping  of  gold  and  silver  bars,  all 
became  separate  and  are  responsible  to  a  Bureau  of  the 
Treasury  department,  whose  chief  officer  is  styled  Director 
of  the  Mint. 

From  the  ratio  of  1  :  15  fixed  by  the  act  of  Congress  in 
accordance  with  Hamilton’s  recommendation  as  the  relative 
value  of  gold  in  silver  to  be  maintained  in  the  coins,  unfore¬ 
seen  and  important  consequences  followed,  since  that  was 
not  the  tiue  ratio  of  their  value  at  the  time  in  the  markets 


MONET  IN  THE  UNITED  STATES. 


893 


of  the  world  ;  an  ounce  of  gold  was  worth  more  at  that  time 
than  15  ounces  of  silver,  and  accordingly  was  worth  more 
Dut  of  the  coinage  than  in  it,  and  was  therefore  exported  in 
preference  to  silver  in  payment  of  foreign  balances,  espe¬ 
cially  after  France  had  changed  the  relative  legal  value  to 
1:15J;  and  of  course  the  gold  refused  to  circulate  here 
under  those  circumstances,  being  undervalued  in  the  coin¬ 
age,  thus  giving  us  another  neat  illustration  of  the  economi¬ 
cal  law  that  the  cheaper  money  will  push  the  dearer  out  of 
circulation.  Not  till  1834  was  the  attention  of  Congress  so 
strongly  drawn  to  this  fact  as  to  secure  a  law  to  remedy  it, 
and  this  law  substantially  rated  gold  to  silver  at  1  :  16.  The 
weight  of  the  gold  dollar  was  then  reduced  from  27  grains  to 
25.8,  and  the  alloy  increased  from  one  part  in  twelve  to  one 
part  in  ten.  This  law  nude  at  one  jump  the  legal  valuation 
of  gold  6.58%  greater  than  before  in  silver,  which  remained 
unchanged.  But  this  in  turn  was  going  too  far  in  the  oppo¬ 
site  direction;  gold  was  not  worth  16  in  silver  in  the  mar¬ 
kets  of  Europe  ;  and  consequently  the  current  of  the  metals 
was  now  reversed,  silver  passing  in  preference  abroad  to 
liquidate  the  balances  of  trade,  and  gold  beginning  to  come 
to  the  United  States,  where  it  was  more  than  3%  dearer  in 
silver  than  in  Europe.  Three  years  later,  that  is,  in  1837, 
the  standard  of  T9^  fine  instead  of  was  applied  to  silver 
also,  and  this  altered  fineness  made  a  change  in  the  weight 
of  the  silver  coins  necessary,  if  the  ratio  of  1:16  were  to 
be  maintained.  Accordingly  the  weight  of  the  silver  dollar, 
and  of  two  halves,  four  quarters,  and  so  on,  was  reduced 
from  416  grains  to  412-J,  that  is  to  say,  less  alloy  was  put 
into  the  silver  coins,  but  the  fine  silver  to  the  dollar  was 
kept  just  as  it  was,  371.25  grains.  Since  1834  there  has  been 
no  change  in  the  gold  dollar,  and  since  1837  there  has  been  no 
change  in  the  silver  dollar-piecC',  and  the  ratio  of  value  be¬ 
tween  gold  and  silver  in  our  coins  is  still  1  :  15.98,  as  the 
silver  dollar  of  1878  and  onwards  corresponds  in  weight 
and  fineness  with  the  dollar  of  1837. 


894 


POLITICAL  ECONOMY . 


Gresham’s  law,  however,  was  busy  from  the  beginning 
with  different  parts  of  this  coinage  scheme,  and  particularly 
with  the  attempt  to  keep  gold  and  silver  in  equilibrio  at  a 
fixed  valuation.  Only  321  silver  dollar-pieces  were  coined 
in  the  year  1805  ;  and  May  1,  1806,  there  is  an  order  from 
President  Jefferson  to  the  Director  of  the  Mint,  “  that  all 
the  silver  to  be  coined  at  the  mint  shall  be  of  small  denomina  ¬ 
tions ,  so  that  the  value  of  the  largest  pieces  shall  not  exceed 
half  a  dollar .”  The  reason  given  for  this  order  is,  “  that 
considerable  purchases  have  been  made  of  dollars  coined  at 
the  mint  for  the  purpose  of  exporting  them ,  and  that  it  is 
probable  that  further  purchases  and  exportations  will  be 
made.”  The  coinage  of  silver  dollars,  thus  suspended,  was 
not  resumed  for  thirty  years.  What  was  the  matter  with  these 
dollars?  Nothing,  only  they  were  too  valuable.  Clipped 
and  worn  Spanish-Mexican  coins  had  slipped  into  circu¬ 
lation  in  large  numbers,  and  driven  out  the  good  pieces  in 
accordance  with  a  principle  better  understood  now  than  then  ; 
while  the  order  itself  was  not  very  intelligent,  insomuch  as 
two  halves,  four  quarters,  or  ten  dimes,  were  equally  valu¬ 
able  with  the  dollar-pieces,  and  as  a  matter  of  fact  were 
almost  equally  driven  out  by  the  smaller  Spanish-Mexican 
coins.  In  1853  the  disadvantages  of  a  double  standard 
had  become  plain  enough,  for  experience  proved  that  the 
value  of  gold  and  silver  each  in  each  was  not  constant  but 
variable  ;  and  Congress  then  wisely  determined  to  make  Gold 
alone  the  legal  tender,  except  in  sums  below  $5,  and  also  to 
reduce  the  weight  of  the  silver  half  dollar  and  its  subdivis¬ 
ions,  so  that  their  nominal  value  should  be  considerably  above 
their  real  value,  and  their  exportation  be  thus  prevented. 
Accordingly  the  half  dollar  was  reduced  from  206^  to  192 
grains,  and  the  smaller  coins  proportionally.  This  was  in 
imitation  of  the  English  legislation  of  1816,  and  brought  in 
a  subsidiary  silver  coinage  of  which  a  nominal  dollar’s  worth 
weighed  6.91%  less  than  the  silver  dollar,  which  was  not 
mentioned  one  way  or  the  other  in  the  law  of  1853,  but 


MONEY  IN  THE  UNITED  STATES. 


895 


which  was  then  worth  about  three  cents  more  than  the  gold 
dollar.  For  reasons  already  given,  silver  dollars  circulated 
but  little  in  the  United  States  even  before  1853,  and  none 
at  ali  between  that  date  and  1878,  when  a  law  wras  passed 
requiring  them  to  be  coined  in  immense  numbers  of  the  old 
weight  and  ratio  to  gold  and  with  full  legal  tender  functions, 
but  their  circulation  was  sluggish  up  to  1883. 

Through  the  influence  of  the  late  Samuel  B.  Buggies,  the 
subsidiary  silver  coins  were  brought  in  1875  into  harmony 
with  the  silver-system  of  France  and  the  Latin  Union. 
Their  five-franc  silver  piece,  wdiich  is  also  T9<y  fine,  weighs 
just  25  grams  or  385.8  grains;  a  dollar’s  worth  of  our  sub¬ 
sidiary  silver  weighed  384  grains  ;  and  it  was  therefore  only 
needful  to  add  a  slight  fraction  to  our  smaller  silver  coins  to 
knit  a  real  connection  between  them  and  much  of  the  Euro¬ 
pean  silver.  Two  halves,  four  quarters,  ten  dimes,  of  our 
silver  since  1875,  are  debased  in  wreight  6.47%  as  compared 
with  the  standard  silver  dollar.  A  more  important  coinage 
connection  with  Europe  was  knit  through  our  five-cent  nickel 
pieces,  each  of  which  weighs  just  five  grams ,  and  five  of 
which  laid  along  in  order  measure  exactly  a  decimetre  in 
length.  These  were  the  first  official  applications  of  the 
Metric  System  on  the  part  of  the  United  States.  The 
nickel  pieces,  both  the  five-cent  and  the  three-cent,  are  75 
parts  copper  and  25  parts  nickel ;  and  the  one-cent  piece  is 
95  parts  copper  and  5  parts  tin-zinc.  Debts  of  4  cents  can 
be  legally  paid  in  one-cent  pieces,  of  60  cents  in  three-cent 
pieces,  of  100  cents  in  five-cent  pieces,  of  500  cents  in  sub¬ 
sidiary  silver,  and  of  any  amount  in  gold  coins  or  in  silver 
dollars. 

Now  we  turn  back  to  paper  money,  and  following  that  till 
the  present  time,  we  shall  have  given  a  complete  though  suc¬ 
cinct  account  of  Money  in  the  United  States.  When  the 
present  national  government  went  into  operation  in  1789, 
besides  the  Bank  of  North  America  in  Philadelphia,  the 
Bank  of  New  York  in  New  York  and  the  Bank  of  Massa- 


896 


POLITICAL  ECONOMY. 


cliusetts  in  Boston  had  been  opened  for  business.  All  three 
were  State  banks  issuing  bills  convertible  into  coin,  and  each 
confined  its  business  for  the  most  part  to  the  city  in  which 
it  was  located.  In  December,  1790,  in  pursuance  of  his  new 
duties  as  Secretary  of  the  Treasury,  Alexander  Hamilton 
recommended  to  Congress  a  Bank  of  the  United  States. 
Undoubtedly  the  Bank  of  England  was  in  his  mind ;  un¬ 
doubtedly  he  was  in  favor  of  a  strong  central  government ; 
and  undoubtedly  he  had  been  disappointed  at  the  local  turn 
taken  by  the  Bank  of  North  America.  There  was  at  that 
time  no  national  money  of  any  kind,  except  some  copper 
cents.  He  argued,  first,  as  respected  the  people,  that  a 
specie-paying  national  Bank  would  afford  both  through  its 
loans  and  its  bills  needed  facilities  to  domestic  exchanges  at 
a  time  when  money  was  scarce  and  confidence  was  low ;  and 
second,  as  respected  the  government,  that  it  would  furnish 
a  good  paper  medium  for  its  monetary  transactions,  and  be  a 
resource  for  its  needed  temporary  loans.  But  the  constitu¬ 
tionality  of  Hamilton’s  plan  was  stoutly  denied  in  Congress. 
The  first-rate  abilities  and  growing  reputation  of  that  eminent 
statesman  had  already  awakened  jealousies  both  in  Congress 
and  in  the  cabinet.  Nevertheless,  a  bill,  in  substantial 
accordance  with  the  views  of  the  Secretary,  passed  both 
houses  by  large  majorities.  Washington,  before  signing  it, 
required  the  written  opinion  of  his  cabinet  on  the  question 
of  constitutionality.  Hamilton  and  Knox  took  the  affirm¬ 
ative  ;  Jefferson  and  Randolph  the  negative ;  the  President, 
as  often,  sided  with  Hamilton,  and  signed  the  bill. 

On  New  Year’s  Day,  1853,  the  present  writer  had  the 
pleasure  of  calling  on  the  widow  of  Alexander  Hamilton, 
who  survived  him  just  fifty  years.  Turning  the  conversation 
on  her  husband’s  connection  with  the  government,  the  old 
lady  remarked  with  enthusiasm,  —  “My  husband  gave  you 
a  bank.  Jefferson  thought  we  ought  not  to  have  any  bank, 
and  Washington  rather  thought  so,  too  ;  but  my  husband 
said  we  must  have  a  bank ;  and  one  day  he  said  to  me,  ‘  My 


MONET  IN  THE  UNITED  STATES. 


897 


dear,  you  must  sit  up  with  me  to-night,  and  write  for  me  ;  * 
and  I  sat  up  all  night,  and  I  wrote  it  out  with  my  own  hand, 
and  the  next  morning  he  carried  it  to  Washington,  and 
we  had  a  bank!”  This  last  was  pronounced  not  without 
exultation. 

In  July,  1791,  the  first  United  States  Bank  went  into  oper¬ 
ation  at  Philadelphia,  under  a  charter  that  was  to  run  twenty 
years,  an 3  with  a  capital  stock  of  $10,000,000,  one-fifth  of 
which  was  subscribed  by  government  and  four-fifths  by  indi¬ 
viduals,  and  the  whole  of  which  was  subscribed  in  a  few  hours 
after  the  books  were  opened.  There  were  things  in  this  Bank 
both  new  and  old.  Hamilton’s  reading  had  given  him  good 
points  out  of  the  past,  and  his  clear  eye  saw  the  special  needs 
of  the  present.  This  was  the  chief  feature  of  the  stock  :  three- 
fourths  of  the  subscription  of  individuals  must  be  in  the  new 
government  stocks,  in  which  Hamilton  had  just  before  funded 
the  old  public  debt,  together  with  the  revolutionary  State  debts 
then  assumed  by  the  nation  for  that  purpose.  These  two 
classes  of  debts  had  been  formed  into  one  new  and  compact 
debt,  bearing  G%  interest.  The  demand  for  the  certificates 
of  this  debt,  in  order  to.make  subscription  with  them  to  the 
new  bank  stock,  carried  them  very  shortly  up  to  par,  so  that 
the  Bank  was  made  an  incidental  means  of  establishing  the 
credit  of  the  United  States.  This  idea  came  from  the  first 

I  rechartering  of  the  Bank  of  England.  That  institution  also 
furnished  the  main  thought  of  this,  namely,  that  the  security 
for  the  bills  and  deposits  of  a  bank  is  best  placed  in  govern¬ 
ment  stocks.  The  later  New  York  banking  system,  and  the 
present  system  of  National  Banks,  both  turn  upon  this  same 
point.  A  second  incidental  object  in  the  charter  of  this 
United  States  Bank  was  to  give  the  bank  a  direct  interest  in 
sustaining  every  way  the  credit  of  the  new  government  under 
the  Constitution.  But  we  have  to  do  with  it  now  mainly  as 
furnishing  during  twenty  years,  the  term  of  its  charter,  a 
paper  money,  secured  by  government  stocks  and  by  cash 
coming  from  the  taxes,  that  was  current  at  a  uniform  value 


398 


POLITICAL  ECONOMY. 


all  over  the  country ;  this  was  something  new  in  the  experi¬ 
ence  of  the  people  with  paper  money ;  no  bills  were  issued 
of  a  less  denomination  than  $10  ;  the  money  was  popular, 
and  it  was  in  addition  to  the  scant  volume  of  Spanish  -Mexican 
coins,  while  the  loans  from  a  bank  with  ample  capital  gave  a 
sharp  spur  under  the  circumstances  to  industry  and  commerce  ; 
the  dividends  to  stockholders  never  fell  below  8,  and  frequently 
rose  to  10%  ;  and  it  is  no  wonder  that,  as  the  time  approached 
for  the  charter  to  expire,  the  stockholders  were  anxious  for 
a  renewal  of  their  privileges.  They  applied  to  Congress  for 
such  renewal,  offering  to  the  government  a  bonus  in  account 
of  $1,250,000  for  the  privilege,  but  the  opposition  to  the 
continuance  of  the  Bank  was  now  strong,  owing  mainly  to 
the  increase  in  the  number  of  State  banks  in  the  twenty  years 
from  3  to  88,  and  to  the  hope  that  these,  in  case  there  were 
no  national  bank,  might  obtain  the  custody  and  use  of  the 
national  funds  and  furnish  the  country  with  paper  money  in 
its  stead  ;  and  accordingly  the  recharter  was  defeated  in  the 
House  by  one  vote,  and  in  the  Senate  also  by  the  casting  vote 
of  the  Vice-President,  and  the  Bank  was  obliged  to  wind  up 
its  affairs  in  1811. 

Then  came  in  a  sort  of  mania  for  the  creation  of  new  State 
banks.  The  Pennsylvania  Legislature  chartered  41  in  one 
session,  and  that  over  the  Governor’s  veto.  New  England 
had  set  the  example  of  “  wild-cat  ”  banking,  but  had  come 
to  her  senses  ;  a  heavy  penalty  was  imposed  there  on  all 
bank-notes  not  redeemed  on  demand  ;  and  in  1813  a  central 
bank  of  redemption  was  chartered  in  Boston,  called  the  New 
England  Bank,  for  the  purpose  of  keeping  New  England 
bank-notes  at  par,  a  function  that  was  afterwards  performed 
by  the  Suffolk  Bank  and  called  by  its  enemies  “  suffocatioji .” 
As  money  is  not  a  commodity  of  which  an  unlimited  quantity 
can  be  absorbed  by  business,  but  is  only  an  instrument  for  a 
certain  specific  purpose  ;  and  as  when  more  than  enough  for 
this  purpose  is  put  out,  a  diminution  in  value  of  every  part 
of  it  is  inevitable,  whether  the  money  be  specie  or  paper; 


MONEY  IN  THE  UNITED  STATES. 


399 


and  as  it  was  the  immediate  pecuniary  interest  of  each  of  these 
new  banks  to  crowd  its  notes  into  circulation  ;  it  is  no  wonder, 
that  distrust  of  the  notes  was  engendered,  that  there  was  such 
a  presentation  of  them  for  redemption  that  the  banks  could 
not  respond,  and  that,  in  the  fall  of  1814,  there  was  a  general 
stoppage  of  all  the  banks  in  the  United  States  excepting  those 
in  New  England.  New  York  city  bank-notes  went  down  to 
90,  those  of  Philadelphia  to  82,  those  of  Baltimore  to  80, 
and  those  of  Pittsburg  to  75%.  Yet  State  banks  multiplied 
even  after  the  crash,  going  up  in  number  to  246  in  1816. 
But  how  shall  they  resume  specie  payment?  Mr.  Dallas, 
Secretary  of  the  Treasury,  and  many  others,  thought  that  a 
new  and  strong  central  Bank,  on  which  these  might  lean  for 
support,  would  enable  them  to  resume  payment,  and  go  on 
thereafter  on  better  principles.  Accordingly  Congress  char¬ 
tered  the  second  Bank  of  the  United  States,  with  a  capital 
of  $35,000,000,  to  which  government  subscribed  $7,000,000, 
but  was  to  be  allowed  by  the  Bank  on  account  $1,500,000 
as  a  bonus.  The  Bank  wras  opened  in  January,  1817,  the 
charter  was  to  run  twenty  years,  and  by  its  help  the  New 
York  banks  resumed  in  little  more  than  a  year  and  all  the 
rest  of  the  State  banks  before  the  close  of  1819. 

But  the  new  bank  was  not  fortunate  in  its  management. 
It  made  great  mistakes.  It  sometimes  discounted  the  notes 
of  individuals  on  a  pledge  of  the  certificates  of  its  own  stock. 
It  pushed  its  own  notes  into  circulation  with  great  eagerness. 
It  is  thought,  that  $100,000,000  of  these  notes  were  in  the 
hands  of  the  people  before  the  first  year  was  out ;  and  it  is 
known,  that  its  discount  line  was  $43,000,000  in  March,  1818. 
Such  a  rapid  swell  in  the  volume  of  money  had  its  usual  con¬ 
sequences.  The  bank  and  its  bills  were  distrusted.  Silver 
came  to  bear  a  premium  of  10%,  and  of  course  was  exported. 
Congress  ordered  a  committee  of  investigation,  and  a  resolu¬ 
tion  was  offered  that  the  charter  be  forfeited.  This  failed 
to  pass,  to  the  disgust  of  John  Randolph,  who  said  then 
what  many  a  member  has  said  since  in  substance,  “  a  man 


400 


POLITICAL  ECONOMY. 


may  as  well  go  to  Constantinople  and  preach  Christianity , 
as  to  go  to  Congress  and  preach  against  banks.”  Although 
under  the  abler  and  more  careful  management,  first  of  Lang- 
don  Cheves,  and  then  of  Nicholas  Biddle,  the  Bank  recovered 
something  of  stability,  it  never  enjoyed  the  same  credit  as 
the  first  Bank  ;  and  in  the  final  wind-up  in  1837  it  was  found 
that  the  whole  capital  had  been  lost,  though  it  managed  to 
pay  its  debts. 

All  this  was  not  wholly  the  fault  of  the  Bank  itself,  foi 
President  Jackson  began  his  famous  contest  with  it  seven 
years  before  its  charter  was  to  expire,  by  giving  the  Directors 
fair  warning  in  his  annual  message  that  there  would  be  “  con¬ 
stitutional  difficulties  ”  in  the  way  of  their  securing  any  exten¬ 
sion  of  their  privileges,  and  three  years  later  he  vetoed  the 
bill  to  recharter  the  Bank.  Then  he  determined  to  remove 
from  its  custody  the  national  moneys,  and  to  place  them  in 
certain  selected  State  banks.  The  order  for  this  removal 
must  legally  come  from  a  Secretary  of  the  Treasury,  and  he 
displaced  two  of  these  in  succession  for  refusing  to  give  it, 
and  at  last  appointed  the  late  Chief  Justice  Taney,  then  a 
young  lawyer  of  Baltimore,  who  at  once  gave  the  required 
order.  The  national  deposits  at  the  moment  amounted  to 
$10,000,000,  and  these  had  been  properly  treated  by  the 
bank  as  a  part  of  its  working  capital,  and  the  discount 
line  resting  in  part  on  these  deposits  was  at  the  time  over 
$60,000,000,  and  their  removal  affected  credit  and  disar¬ 
ranged  business  to  a  remarkable  degree  and  caused  intense 
excitement  all  over  the  Union.  Shortly  after  the  removal 
of  the  deposits,  followed  the  issue  of  the  famous  “  specie- 
circular,  ”  in  which  the  Treasury  directed  the  receivers  of  the 
public  money  to  take  nothing  but  gold  and  silver  in  payment 
for  sales  of  the  public  lands.  Speculators  and  others  had 
been  making  large  purchases  of  western  lands,  and  expected 
to  pay  for  them  in  paper  money,  and  the  specie-circular  came 
upon  these  like  a  clap  of  thunder,  and  made  the  previous 
confusion  worse  confounded.  President  Jackson  went  out 


MONEY  IN  TIIE  UNITED  STATES. 


401 


of  office,  and  the  second  Bank  of  the  United  States  went 
out  of  being,  in  the  same  year ;  but  Van  Buren,  who  was 
proud  to  44  tread  in  the  footsteps  of  my  illustrious  predecessor ,” 
completed  the  inaugurated  movement  and  effected  the  divorce 
of  the  Government  from  all  banks  whatsoever,  first,  by  di¬ 
recting  the  State  banks  which  then  had  the  keeping  of  the 
public  moneys  to  distribute  them  as  surplus  revenue  among 
the  States,  and  second,  by  the  Sub-Treasury  scheme  in  pur¬ 
suance  of  which  the  United  States  received  in  payment  of 
all  dues  and  paid  out  in  all  disbursements  gold  and  silver 
only.  That  was  doubtless  a  good  goal  to  reach,  though  there 
was  something  headlong  in  the  methods  of  getting  to  it,  which 
doubtless  contributed  to  the  overthrow  of  Van  Buren’s  party 
in  1840. 

From  1837  to  1862  there  was  no  national  money  in  the 
United  States  except  the  coins  ;  the  withdrawal  from  circu¬ 
lation  of  the  bills  of  the  United  States  Bank  helped  intensify 
the  great  commercial  crisis  of  1837,  and  stimulated  the  crea¬ 
tion  of  new  State  banks  whose  number  was  675  in  1838  ; 
and  these  State  banks,  increased  at  last  to  over  1,500  in  all, 
furnished  till  1862  all  the  paper  money  of  the  country.  Their 
bills  were  nominally  convertible  into  coin  at  the  will  of  the 
holders.  Some  of  the  States  required  their  banks  to  keep  a 
percentage  of  specie  on  hand  for  the  redemption  of  their 
bills,  and  some  of  them  required  only  a  deposit  with  an 
officer  of  the  State  of  some  kind  of  securities  on  the  strength 
of  which  the  banks  were  allowed  to  issue  an  equivalent  amount 
in  bills,  and  some  of  them  did  not  require  even  so  much  as 
this.  It  was  a  fast  and  loose  system.  In  1829,  Massachusetts 
passed  a  law  limiting  the  bills  of  any  bank  to  25%  in  excess 
of  its  paid-up  capital,  and  New  York  established  the  so-called 
44  Safety  Fund  System,”  under  which  a  common  fund  was 
created  by  the  contribution  of  the  banks  for  paying  the  in¬ 
debtedness  of  any  bank  that  should  become  insolvent,  but 
neither  law  proved  adequate  to  its  purpose.  Nine  years 
later  New  York  founded  the  44  Free  Banking  System,”  under 


402 


POLITICAL  ECONOMY . 


which  the  circulating  notes  were  secured  by  a  deposit  of 
United  States  or  New  York  State  stocks,  or  bonds  and  mort¬ 
gages  on  improved  and  productive  real  estate ;  and  in  1840 
each  bank  was  required  to  redeem  its  notes  at  an  agency 
either  in  New  York  City,  or  Albany,  or  Troy.  Both  of  these 
good  features  were  afterwards  borrowed  by  the  United  States 
to  put  into  the  present  national  banking  law,  but  they  were 
not  sufficient  in  the  State  that  devised  them  to  secure  per- 
feclly  the  immediate  or  even  the  ultimate  conversion  of  th3 
notes  into  coin.  Still,  the  paper  money  of  New  York  and 
New  England  on  account  of  the  pains  taken  for  its  redemp¬ 
tion  circulated  more  or  less  all  over  the  Union,  while  the 
money  of  other  States  had  for  the  most  part  only  a  local 
circulation.  As  a  rule  in  those  days  every  bank-note  offered 
was  scrutinized  by  the  person  asked  to  take  it  in  pa}Tment, 
and  the  common  distrust  and  refusal  were  a  great  hindrance 
to  domestic  exchanges. 

At  last  the  people  wisely  concluded  to  abandon  this  whole 
State  paper-money  system.  The  following  are  among  the 
chief  grounds  of  the  wisdom  of  that  action.  (1)  The  sys¬ 
tem  was  liable  to  great  and  sudden  contractions  and  expan¬ 
sions  in  the  volume  of  the  paper  money.  For  instance,  the 
volume  in  1858  was  $59,570,474  less  than  in  1857,  and  in 
1863  more  by  $54,885,139  than  in  18G2.  The  largest  aggre¬ 
gate  of  this  money  was  in  1857,  before  the  panic  of  that 
year,  when  it  rose  to  $214,000,000.  Just  before  the  panic 
of  1837  it  stood  at  $149,000,000,  and  then  fell  off  to 
$116,000,000.  (2)  The  ratio  of  the  paper  money  to  the 

specie  reserved  to  redeem  it  was  always  a  very  high  ratio. 
For  instance,  the  average  for  the  whole  country  in  January, 
1863,  was  4:1;  in  Rhode  Island  12:1;  and  in  Vermont 
28:1.  Such  a  paper  money  can  be  called  convertible  only 
by  a  stretch  of  courtesy.  (3)  As  a  matter  of  fact,  so  soon 
as  there  came  to  be  a  financial  pressure,  and  especially  when¬ 
ever  the  exigencies  of  commerce  withdrew  gold  from  reserves 
already  so  small,  the  banks  were  compelled  to  confess  what 


MONEY  IN  THE  UNITED  STATES. 


403 


everybody  might  have  known  beforehand,  that  they  were 
unable  to  redeem  their  promises.  Four  or  five  times  during 
the  continuance  of  the  sj’stem  panics  attacked  the  paper 
money,  and  the  banks  generally  suspended  specie  payment. 
In  these  times  of  stress,  some  of  the  banks  and  some  sec¬ 
tions  of  the  country  did  better  than  others ;  the  Bank  of  the 
State  of  Indiana,  for  example,  under  the  management  of 
Hugh  McCulloch,  afterwards  Secretary  of  the  Treasury, 
maintained  specie  payments  in  the  trying  periods  of  1857 
and  1861.  (4)  The  instability  of  the  general  system  tended 

towards  a  reckless  way  of  doing  business,  and  led  on  to  fre¬ 
quent  bankruptcies  both  of  banks  and  individuals,  which 
became  a  just  reproach  to  the  nation.  The  banks  contrib¬ 
uted  powerfully  in  times  of  quiet  by  a  system  of  generous 
loaning  of  their  bills,  on  which  their  profits  depended,  to 
induce  a  spirit  of  speculation  and  a  willingness  to  contract 
debts,  and  then  when  the  re-action  came  experienced  them¬ 
selves  how  much  easier  it  is  to  loan  paper  promises  than  to 
fulfil  them.  Their  inability  to  continue  in  troublous  times  the 
free  loans  which  helped  to  bring  them  on,  and  their  repeated 
failures  to  make  good  the  obligation  to  redeem  their  own 
bills,  caused  incalculable  losses  of  property.  There  can  be 
no  hesitation  in  affirming  that  the  expense  of  maintaining  a 
gold  and  silver  money  for  all  the  wants  of  the  whole  country 
might  have  been  met  many  times  over  from  the  vast  losses 
coming  from  this  bank-paper  system.  (5)  This  cheap  paper 
money  kept  out  the  coins  from  common  use  in  payments,  and 
bills  were  so  likely  to  be  uncurrent  in  localities  distant  from 
cheir  place  of  issue,  that  travelling  from  one  part  of  the 
country  to  another  was  often  difficult  as  well  as  the  making 
of  payments  between  them  ;  the  countiy  was  not  really  one 
in  its  monetary  relations  ;  men  unwittingly  took  uncurrent 
bills  in  payment  or  bills  that  became  uncurrent  in  their  hands, 
and  lost  in  other  ways  by  the  failure  of  banks ;  and  the  feel¬ 
ing  with  which  the  people,  especially  at  the  West,  turned 
to  a  better  system,  was  well  voiced  by  Horace  White,  “  the 


404 


POLITICAL  ECONOMY. 


farmers  c  f  Illinois ,  Michigan  and  Wisconsin ,  would  rather 
encounter  ivar,  pestilence,  or  famine  than  the  old  style  of  un¬ 
secured  or  imperfectly  secured  bank-notes ,  by  which  they  were 
robbed  at  frequent  intervals  during  the  twenty-five  years  pre¬ 
ceding  the  war.” 

Appalling  financial  difficulties  confronted  Secretary  Chase 
during  the  first  year  of  the  late  civil  war.  The  nation  must 
borrow,  or  perish  ;  but  the  preceding  administration,  even  in 
the  initial  troubles  which  had  now  culminated,  had  paid  12  ^ 
interest  on  a  public  loan,  and  could  borrow  but  little  at  that 
rate.  The  credit  of  the  government  was  very  low  in  18G1  ; 
but  the  country  must  be  defended,  an  army  be  raised  and 
equipped  and  put  into  the  field  and  paid,  and  the  ordinary 
expenses  of  government  be  met.  Accordingly  the  Secretary 
in  his  first  annual  report  to  Congress  in  December  of  that 
year,  with  an  eye  chiefly  to  making  easier  the  borrowing  of  a 
few  hundred  thousand  dollars,  recommended  the  organization 
of  a  new  national  banking  system.  The  main  features  of 
the  plan  proposed,  taken  in  part  by  acknowledgment  from 
the  New  York  State  system,  were,  (1)  that  the  bank-notes 
to  be  issued  as  money  should  all  be  secured  by  bonds  of  the 
United  States  bought  by  each  bank  in  amount  proportioned 
to  its  notes  but  deposited  in  the  national  Treasury  as  security 
for  their  ultimate  redemption  ;  (2)  that  the  notes  should  be 
furnished  to  each  bank  by  the  United  States,  which  should 
guarantee  their  full  payment,  not  simply  as  a  trustee  holding 
securities  for  the  purpose,  but  also  as  a  principal  pledging 
the  public  faith ;  and  (3)  that  each  bank  should  be  obliged 
to  receive  at  par  for  any  debt  due  it  the  notes  of  any  other 
bank  in  the  system,  and  the  government  be  obliged  to  receive 
them  for  all  taxes  or  other  dues  except  duties  on  imports, 
and  have  the  right  to  pay  them  out  for  all  debts  except 
interest  on  the  public  bonds.  This  national  banking  scheme, 
planned  to  secure  not  only  a  market  for  bonds  but  also  a 
paper  money  uniform  in  character  for  the  whole  country  and 
wholly  secured  as  to  convertibility,  foreshadowing  as  it  did 


MONEY  IN  THE  UNITED  STATES. 


405 


the;  winding  up  of  the  State  banks  as  issuers  of  paper  money, 
found  at  first  but  little  favor  in  Congress  or  among  the  peo¬ 
ple.  In  his  second  annual  report  a  year  later,  the  Secretary 
iterated  his  recommendations,  and  enforced  them  by  argu¬ 
ments  drawn  from  the  pressing  need  of  large  loans,  from  the 
character  of  the  money  for  soundness  and  uniformity  to  be 
thus  furnished  to  the  people,  from  the  convenient  agencies 
which  such  banks  would  furnish  for  the  deposit  of  public 
moneys,  and  from  the  firm  anchorage  which  such  a  system 
would  give  to  the  union  of  the  States.  These  arguments, 
which  found  a  response  especially  emphatic  from  the  Western 
States,  coupled  with  the  assurance  of  the  Secretary,  that,  if 
Congress  should  concur  in  his  views,  though  conscious  of  the 
great  difficulty  which  vast,  sudden,  and  protracted  expendi¬ 
tures  imposed  on  him,  he  thought  he  should  still  be  able  to 
maintain  the  public  credit  and  provide  for  the  public  wants, 
induced  Congress  to  frame  and  pass  u  An  act  to  provide  a 
national  currency  secured  by  a  pledge  of  United  States  stocks, 
and  to  provide  for  the  circulation  and  redemption  thereof.” 
The  act  was  approved  by  the  President  Feb.  25,  1863. 

In  the  mean  time,  Congress  felt  compelled  to  issue  Treas¬ 
ury  notes  made  legal  tender  for  all  debts  public  and  private 
except  duties  on  imports  and  interest  and  principal  of  the 
national  bonds.  These  notes  have  been  commonly  called 
greenbacks.  The  first  issue  was  made  in  April,  1862,  and 
was  justified  as  a  war  measure.  $450,000,000  were  put  out 
in  all,  of  which  $87,000,000  were  taken  in,  and  the  rest  was 
still  circulating  in  1883.  In  one  month  after  the  first  issue 
of  $150,000,000,  these  greenbacks  began  to  droop  in  value 
as  compared  with  gold ;  in  four  months,  when  the  second 
batch  of  $150,000,000  was  authorized,  their  depreciation 
was  already  marked  and  firm ;  and  in  nine  months,  when 
President  Lincoln  reluctantly  gave  his  approval  to  the  third 
issue  of  the  same  amount  in  order  to  pay  off  the  soldiers 
and  sailors,  he  uttered  a  solemn  protest  against  the  policy 
of  thus  inflating  the  current  money,  which,  he  said,  “  has 


406 


POLITICAL  ECONOMY. 


already  become  so  redundant  as  to  increase  prices  beyond 
real  values ,  thereby  augmenting  the  cost  of  living  to  the 
injury  of  labor ,  and  the  cost  of  supplies  to  the  injury  of 
the  ichole  country .”  In  March,  1863,  $50,000,000  of  paper 
promises  for  fractions  of  a  dollar  were  authorized,  redeem¬ 
able  in  sums  of  not  less  than  three  dollars  in  greenbacks, 
and  receivable  for  all  dues  to  the  United  States  less  than 
five  dollars,  except  for  duties  on  imports.  Subsidiary  silver 
coins  have  since  taken  the  place  of  these  fractionals.  In 
July,  1863,  the  greenback  dollar  had  lost  one-quarter  of  its 
nominal  value ;  in  July,  1864,  it  had  lost  almost  two-thirds 
of  its  nominal  value,  as  its  lowest  point  was  reached  in  that 
month,  namely,  35  cents  as  compared  with  the  gold  dollar ; 
in  July,  1865,  it  had  risen  to  70  cents;  in  July,  1866,  it 
stood  at  66  cents,  just  two-thirds  of  a  dollar  proper ;  and 
from  that  time  it  slowly  rose,  with  many  fluctuations,  till 
New  Year’s,  1879,  when  it  became  legally  and  actually  re¬ 
deemable  in  gold  and  silver.  Its  variations  for  the  sixteen 
years,  however,  cannot  be  counted  bythe  number  of  years, 
nor  even  by  the  number  of  days ;  for  they  were  numerous 
on  each  business  day,  and,  as  Comptroller  Knox  says,  “  can 
only  be  numbered  by  tens  of  thousands.”  What  a  Measure 
of  Services  that  was  ! 

A  beautiful  illustration  of  Gresham’s  law  was  witnessed 
in  the  interval  of  time  just  traversed.  In  1862,  just  so 
soon  as  the  greenback  dollars  fell  fairly  below  the  gold  dol¬ 
lars  in  value,  the  latter  left  the  channels  of  trade  in  a  very 
few  days’  time.  Down  sank  the  greenbacks  gradually  below 
the  subsidiary  silver  coins  in  value,  and  the  latter  obediently 
and  utterly  abandoned  the  commercial  field.  At  last  the 
greenbacks  went  down  even  below  the  level  of  the  copper 
cents,  which  at  that  time  cost  the  government  about  half  a 
cent  each,  and  this  invariable  law  of  money  swept  the  circu¬ 
lation  bare  of  coppers,  and  the  people  had  to  resort  for  their 
smallest  change  to  postage-stamps  and  shin-plasters  and  other 
abominations.  Happily,  the  country  survived  to  see  these 


MONEY  IN  TELE  UNITED  STATES. 


407 


processes  exactly  reversed,  and  the  old  law  confirmed  on  its 
other  side.  When,  after  a  considerable  interval,  the  paper 
dollar  appreciated  to  the  proper  height,  it  was  interesting  to 
watch  the  copper  cents  put  in  a  prompt  re-appearance  ;  after 
a  still  larger  appreciation  of  the  paper,  back  came  in  abun¬ 
dance  the  subsidiary  silver  ;  and  as  the  day  of  the  redemption 
of  the  paper  drew  near,  silver  dollars  and  gold  dollars  greeted 
smilingly  their  old  acquaintances  of  the  street. 

When,  after  a  long  time,  the  question  of  the  constitutional 
right  of  Congress  to  make  a  mere  promise  a  legal  tender  for 
debts,  that  is  to  say,  to  make  a  promise  the  same  thing 
legally  as  its  fulfilment ,  —  a  monstrous  incongruity,  —  was 
brought  up  to  the  Supreme  Court  of  the  United  States,  the 
majority  of  the  court,  including  Chief  Justice  Chase,  who 
as  Secretary  of  the  Treasury  had  recommended  the  opposite, 
decided,  after  most  elaborate  argument  and  deliberate  con¬ 
sideration,  that  the  Constitution  gave  no  authority  to  Con¬ 
gress  to  create  a  paper  legal  tender  which  could  apply  to 
pre-existing  contracts ;  and  some  of  the  judges  held  that  it 
was  equally  unconstitutional  to  compel  parties,  in  the  ab¬ 
sence  of  mutual  agreement  to  that  end,  to  receive  such 
paper  promises  in  fulfilment  of  contracts  even  made  sub¬ 
sequently  to  the  passage  of  the  law.  After  this  decision 
was  thus  solemnly  rendered,  two  new  judges  whose  opinions 
on  the  point  were  known  beforehand  and  who  were  selected 
on  that  very  account,  were  put  upon  the  bench,  and  this 
change  in  the  personnel  of  the  court  was  made  the  means  of 
reversing  the  decision,  no  new  points  therefor  being  raised 
either  by  the  new  judges  or  by  counsel  in  the  new  trial ,  and 
the  chief  justice  and  his  associates  still  adhering  to  their 
former  opinions.  It  is  scarcely  needful  to  add,  that  the 
Supreme  Court  of  the  United  States  suffered  in  the  judg¬ 
ment  of  good  citizens  by  that  transaction^  that  the  best 
legal  and  financial  opinion  in  the  country  yielded  little 
respect  to  a  decision  thus  secured ;  and  that  intelligent 
people  do  not  believe  that  constitutional  law  can  sanction 


408 


POLITICAL  ECONOMY. 


what  contravenes  at  once  common  sense  and  common  moral¬ 
ity.  Judge  Field,  one  of  the  majority  in  the  first  decision, 
uses  this  just  language  in  respect  to  the  second,  in  which  he 
could  not  concur:  “  It  follows ,  then ,  logically ,  from  the  doc¬ 
trine  advanced  by  the  majority  of  the  court  as  to  the  power  of 
Congress  over  the  subject  of  legal  tender ,  that  Congress  may 
borrow  gold  coin  upon  a  pledge  to  repay  gold  at  the  maturity 
of  its  obligations ,  and  yet  in  direct  disregard  of  its  pledge,  in 
open  violation  of  faith ,  may  compel  the  lender  to  take,  in 
place  of  the  gold  stipulated,  its  own  promises ;  and  that  legis¬ 
lation  of  this  character  woxdd  not  be  in  violation  of  the  Con¬ 
stitution,  but  in  harmony  with  its  letter  and  spirit.  What  is 
this  but  declaring  that  repudiation  by  the  government  of  the 
United  States  of  its  solemn  obligations  would  be  constitu¬ 
tional?  ” 

To  complete  this  history  of  Money  in  the  United  States, 
it  only  remains  to  follow  till  the  present  time  the  action  of 
the  new  national  banks  so  far  as  their  issue  of  paper  money 
is  concerned.  We  shall  see  in  the  next  chapter,  that  it  is 
not  an  essential  function  of  Banking  to  issue  paper  money, 
although  in  this  country  this  has  been  more  commonly  added 
to  the  other  more  important  duties  of  the  banker.  Banking 
proper  can  only  be  understood  in  connection  with  the  general 
subject  of  Credit.  Slowly  at  first,  many  of  the  old  State 
banks  re-organized  under  the  national  law  of  1863,  and  many 
new  banks  were  incorporated  under  its  elaborate  provisions. 
The  charters  of  all  extended  twenty  }’ears.  The  bills  of  the 
old  banks  were  gradually  retired  under  a  heavy  national  tax. 
The  bills  of  the  new  banks,  although  they  came  into  direct 
competition  with  the  greenbacks  and  fell  in  value  as  com¬ 
pared  with  gold  by  equal  step  with  these  under  the  increase 
of  their  common  volume,  soon  became  popular  and  circu¬ 
lated  everywhere  on  account  of  their  national  character ;  for, 
although  they  were  not  made  legal  tender  for  all  debts,  they 
were  made  redeemable  into  greenbacks,  which  were  thus  legal 
tender ;  and,  as  this  secondary  redemption  was  but  rarely 


MONEY  IN  TIIE  UNITED  STATES. 


409 


called  for,  as  the  amount  of  greenbacks  required  of  each 
bank  for  the  purposes  of  this  redemption  was  reckoned  in 
as  a  part  of  the  whole  reserve  required  of  each  bank  to  be 
kept  against  its  other  and  greater  liabilities,  and  as  since 
1874  only  5%  of  its  bills  arc  required  to  be  kept  in  lawful 
money  by  each  bank  on  deposit  in  the  national  treasury  for 
their  redemption,  national  banking  became  very  profitable 
partly  on  the  ground  of  this  privilege  of  issuing  money,  and 
the  number  of  banks  multiplied  in  all  parts  of  the  country. 

In  the  eight  years,  1870-77,  a  period  for  the  most  part  of 
great  depression  in  most  branches  of  business,  the  national 
banks  of  the  whole  country,  according  to  Comptroller  Knox, 
cleared  an  annual  net  profit  of  8%,  to  which  he  credits 
about  3%  net  profit  on  the  issuing  of  the  bills.  No  other 
leading  branch  of  business  made  any  such  profits  as  that  in 
that  interval.  At  the  close  of  the  fiscal  year  1880,  there  were 
in  operation  2,102  national  banks  ;  during  that  year,  they  paid 
the  United  States  in  taxes,  $7,591,770,  and  had  paid  in  all 
from  the  first  till  that  date  $100,361,460  in  national  taxes  ; 
and  yet,  these  bankers,  making  more  money  than  any  other 
class  of  business  men,  and  paying  under  the  central  govern¬ 
ment  relatively  lighter  taxes  than  any  other  class  of  buyers 
and  sellers,  made  in  the  decade  ending  in  1883  more  com¬ 
plaint  of  taxes  and  more  persistent  efforts  to  be  rid  of  them 
than  any  otfier  class  of  men.  There  were  outstanding  Nov. 
1,  1881,  $360,344,250  of  national  bank  bills,  $346,681,016 
of  greenbacks,  $562,568,971  of  gold  coin,  and  $186,037,365 
of  silver  coin,  an  aggregate  of  $  1,455, 631, 602. 1 

Originally  the  total  amount  of  bank-bills  authorized  to  be 
issued  was  $300,000,000,  but  this  limit  was  extended  in  1870 
to  $354,000,000,  and  the  act  of  1875  removed  all  restric¬ 
tions  on  the  aggregate  amount  of  bank-bills,  though  there 
are  restrictions  on  the  amount  that  any  one  bank  may  issue. 
The  laws  of  1874  and  1882  made  it  easy  for  any  national 
bank  desiring  to  withdraw  in  part  or  in  whole  its  bills  from 

1  Report  Comptroller  Knox,  1881. 


410 


POLITICAL  ECONOMY. 


circulation  to  deposit  lawful  money  in  the  treasury  in  order 
to  take  up  the  hills,  and  then  to  take  back  the  proportionate 
amount  of  the  bonds  held  for  their  security.  This  was  in 
hopes  the  volume  of  the  money  would  wax  and  wane  accord¬ 
ing  to  the  varying  demands  of  business.  No  bank  can  issue 
in  bills  over  90%  of  the  par  value  of  the  bonds  deposited  to 
secure  the  bills ;  and,  since  1882,  national  banks  having  a 
capital  stock  of  $150,000,  or  less,  are  not  required  to  deposit 
bonds  with  the  Treasurer  in  excess  of  one-fourth  of  such 
stock  as  security  for  their  bills.  The  law  of  the  same  year 
made  provision  for  the  easy  extension  of  the  charter  of  any 
national  bank  for  a  second  period  of  20  years,  authorized 
the  issue  of  3%  bonds  of  the  United  States  to  serve  as  a 
basis  for  national  banking,  and  permitted  the  deposit  in  the 
treasury  of  gold  coin  in  sums  not  less  than  $20  and  the  issue 
therefor  of  certificates  in  denominations  of  that  amount 
and  upwards  corresponding  with  the  higher  denominations 
of  greenbacks. 

Conceding  the  propriety  of  paper  money,  and  looking  at 
the  national  banking  scheme  solely  at  present  as  issuing  it, 
several  and  considerable  merits  must  be  allowed  to  the  plan, 
such  as,  (1)  the  publicity  of  the  affairs  of  each  bank  and  of 
all  the  banks  within  the  system,  since  the  comptroller  pub¬ 
lishes  from  time  to  time  the  sworn  statements  of  bank  officers, 
the  results  of  skilled  examinations,  in  short  every  thing  about 
the  banks  that  the  public  wants  to  know  ;  (2)  the  certainty 
of  the  redemption  of  the  bills,  since  a  responsible  third  party 
holds  in  his  hands  ample  funds  for  that  purpose ;  (o)  the 
nationality  and  dignity  of  the  bills,  since  they  go  freely 
wherever  the  flag  floats,  and  the  image  and  superscription 
of  Caesar  is  really  upon  every  bill ;  (4)  the  relative  flexi¬ 
bility  of  the  volume  of  this  money,  and  the  ease  with  which 
worn  and  mutilated  bills  are  replaced  by*  new  ones  ;  (5)  the 
society  of  the  banks  within  the  system,  by  which  each  is 
rationally  interested  in  the  good  name  and  success  of  the 
rest,  and  in  consequence  of  which  a  higher  self-respect  and 


MONEY  IN  TUE  UNITED  STATES. 


411 


a  more  co-operative  and  conservative  spirit  tend  to  come  to 
every  banker ;  and  (G)  the  community  of  their  money  in  its 
origin  and  nature  as  between  the  distant  and  different  States 
and  peoples  is  a  bond  binding  them  together  and  neutralizing 
in  part  the  centrifugal  forces  always  at  work  in  large  societies 
of  men. 

On  the  other  side,  there  are  some  pretty  strong  objections 
to  this  mode  of  issuing  paper  money,  such  as,  (1)  the  basis 
of  it  all' presupposes  a  national  debt,  which  the  people  do 
not  regard  as  a  blessing,  and  which,  so  far  as  it  is  paid  off 
as  it  ought  to  be,  destroys  the  foundation  on  which  this  money 
rests ;  (2)  the  issuing  of  the  money  is  mixed  up  with  other 
things  incongruous  icith  it ,  since  the  bank  that  issues  also 
takes  in  deposits,  payr  checks,  discounts  notes,  and  buys  and 
sells  debts  generally,  which  is  the  true  business  of  a  banker ; 
and  (3)  it  looks  invidious  and  at  any  rate  gives  rise  to  hard 
thoughts  to  grant  to  one  small  class  of  men  the  privilege  of 
issuing  for  their  own  profit  a  part  of  the  national  money. 
More  or  less  ill-will  among  the  people  towards  the  national 
banks,  and  jealousy  of  their  great  influence  over  congres¬ 
sional  legislation,  have  been  an  open  secret  for  many  years  ; 
and  the  last  sentence  uncovers  the  main  root  of  these  hostile 
feelings.  Shall  we  say,  then,  that  the  privilege  of  issue 
should  be  taken  from  the  national  banks?  That  is  a  hard 
question.  Shall  we  say,  that,  if  there  is  to  be  paper  money, 
it  is  better  that  the  government  issue  it  directly  like  the 
greenbacks?  That  is  another  hard  question.  Objections 
are  easy  to  both  modes,  and  indeed  to  any  mode  of  putting 
out  paper  money  ;  but  both  modes  are  now  in  operation,  and 
in  all  likelihood  will  be  for  a  long  time  to  come.  Congress 
has  forbidden  the  contraction  of  the  volume  of  the  green¬ 
backs  ;  the  national  banks  have  obtained  an  extension  of 
their  charters  for  twenty  years ;  silver  certificates  issued 
dollar  for  dollar  on  silver  coin  deposited  by  individuals  and 
reserved  intact  by  the  Treasury  are  in  the  hands  of  the 
people ;  and  gold  certificates  of  a  like  description  to  be  re- 


412 


POLITICAL  ECONOMY. 


deemed  in  gold  coin,  as  the  others  in  silver,  which  seems  to 
be  the  best  possible  form  of  paper  money,  and  which  makes 
up  four  kinds  in  all,  were  legalized  in  1882. 

A  few  statements  will  now  review  and  condense  the  points 
of  this  chapter :  — 

1.  The  colonists  had  a  notion  that  they  could  not  afford  to 
use  sterling  money ,  and  also  that  a  worse  money  drives  out  a 
better ;  and  this  double  hey  opens  most  of  the  mysteries  of 
colonial  moneys. 

2.  The  old  pine-tree  coinage  of  Massachusetts  is  at  once 
historically  interesting  and  scientifically  instructive. 

3.  The  strength  and  the  weakness  of  Credit  are  illustrated 
at  once  in  the  old  bills  whether  of  the  colonies  or  of  the  Conti¬ 
nent. 

4.  The  experiences  of  the  Confederation ,  and  especially  the 
establishment  of  a  new  Government,  furnished  our  first  finan¬ 
ciers  their  splendid  opportunities. 

5.  Our  Banking  owes  most  to  Morris,  our  Coining  to 
Jefferson,  and  our  Funding  to  Hamilton. 

6.  The  single  standard  of  gold,  and  the  subsidiary  silver 
pieces,  both  date  from  1853. 

7.  New  York  furnished  the  model,  and  Secretary  Chase 
became  the  manipulator ,  of  the  national  bank  system. 

8.  Recent  experiments  in  legal  tender ,  in  bimetallic  and 
other  coinage,  and  in  new  forms  of  paper  money ,  promise  to 
enrich  with  wisdom  the  studious  Future . 


CREDIT. 


413 


CHAPTER  XI. 

CREDIT. 

Political  Economy  is  the  Science  of  Sales.  Because  it  is 
the  science  of  sales,  its  definitions  and  principles  must  cover 
equally  all  cases  of  sales  actually  occurring  or  possible  to 
occur.  We  have  seen  fully,  that  there  are  only  three  kinds 
of  things  that  are  ever  bought  and  sold,  or  ever  will  be,  and 
these  are  Commodities  and  Services  and  Claims.  The  first 
two  kinds  have  been  completely  elucidated  already,  and  it 
belongs  to  the  present  chapter  to  explain  clearly  and  illustrate 
fully  the  peculiarities  of  the  third  kind.  Our  science  has  to 
do  with  the  motives  and  facts  and  economic  results  of  all 
sales  whatsoever. 

Some  sales  or  exchanges  are  consummated  at  once,  that 
is,  the  things  exchanged  and  the  ownership  in  them  are 
mutually  passed  over  then  and  there,  the  reciprocal  satisfac¬ 
tions  are  entered  upon  immediately,  and  there  is  an  econom¬ 
ical  end.  For  example,  one  neighbor  sells  another  a  peck 
of  green  pease  and  takes  in  pay  a  peck  of  new  potatoes,  both 
vegetables  are  cooked  for  dinner  in  the  respective  families 
the  same  day,  and  the  transaction  is  all  over.  But  there  are 
other  exchanges  which  have  this  peculiarity,  that  the  trans¬ 
action  is  not  then  and  there  ultimately  closed,  but  one  (or 
both)  of  the  parties  exchanging  relies  on  the  good  faith 
of  somebody  to  fulfil  in  the  future  a  promise  expressly  or 
impliedly  made  in  the  exchange.  Commonly  some  evidence 
of  the  promise  is  created  and  passed  at  the  time.  For  exam¬ 
ple,  A  buys  50  bushels  of  wheat  of  B,  and  B  takes  in  pay 
A’s  note  at  six  months  for  $75.  Considered  as  a  mere  case 


414 


POLITICAL  ECONOMY. 


of  value  created  and  measured,  this  transaction  might  be 
said  to  be  ended,  and  in  one  sense  it  is  ended ;  but,  consid¬ 
ered  as  to  the  nature  of  that  exchange  which  requires  another 
exchange  to  complete  it,  the  transaction  is  not  }’et  ended,  and 
Political  Economy  must  follow  it  in  its  principles  to  the  end, 
because  the  further  exchange  or  sale  was  contemplated  by 
B  as  a  part  of  his  motive  for  taking  A’s  note  as  an  equiva¬ 
lent  for  the  wheat.  The  right  to  demand  a  future  equivalent 
of  that  was  the  present  equivalent  for  the  sake  of  which  the 
wheat  was  rendered  by  B.  It  was  therefore  a  clear  case  of 
value,  since  each  rendered  the  other  satisfactory  equivalents, 
and  all  our  definitions  apply  here  perfectly. 

This  peculiarity  thus  sketched  in  outline  is  vastly  impor¬ 
tant  to  be  considered,  and  gives  rise  to  all  the  phenomena 
that  pass  under  the  general  name  of  Credit.  There  are  two 
essential  features  of  this  peculiarity.  One  is,  that  it  always 
involves  future  time ;  and  the  other  is,  that  it  always  involves 
confidence  in  Persons  as  such.  The  term  credit  is  derived 
from  Credo,  I  believe,  and  the  corresponding  debt  from 
Debeo,  I  owe.  Thus  the  personal  element  and  the  future 
element  are  wrapt  up  in  the  very  origin  of  the  words.  There 
is  no  debt  without  credit,  and  there  is  no  credit  without  debt. 
The  words  imply  a  belief  of  one  of  the  parties  in  a  virtual  prom¬ 
ise  made  by  the  other,  and  an  obligation  acknowledged  by 
one  party  as  due  to  the  other.  Credit,  then,  may  be  defined 
as  a  Right  to  demand  something  of  somebody ;  and  Debt,  as 
an  Obligation  to  pay  something  to  somebody.  What  lies,  ac¬ 
cordingly,  between  creditors  and  debtors,  are  Bights  coupled 
with  Obligations  ;  and  these  are  Property ,  since  they  may  be, 
and  often  are,  bought  and  sold.  It  is  these  Bights  or  Claims, 
that  become  the  subject  of  a  commerce  immense  in  extent 
and  amount,  and  that  take  their  place  on  an  equality  with 
tangible  Commodities  and  personal  Services. 

Macleod,  wTho  has  cast  fresh  light  on  the  nature  of  Credit, 
makes  a  distinction  that  lies  on  the  threshold  of  the  subject, 
namely,  that  between  paper  documents  conveying  titles  to 


CREDIT. 


415 


specific  things,  such  as  a  bill  of  lading,  and  those  conveying 
credit  rights,  such  as  a  bank  note.  Both  kinds  are  trans¬ 
ferable  at  will,  but  the  former  go  with  the  goods,  are  a  title 
to  the  goods,  and  have  no  value  separate  from  the  goods ; 
while  the  latter  have  nothing  to  do  with  any  specific  pieces 
of  property  whatever,  are  in  no  proper  sense  a  title  to  any 
thing,  but  are  a  general  claim  for  something  upon  some  person 
that  awaits  his  action  for  its  validity.  For  example,  a  Chicago 
grain-dealer  sells  1,000  bushels  of  No.  2  wheat  to  a  party  in 
New  York,  and  ships  the  grain  to  that  point :  two  kinds  of 
papers  arise  in  the  transaction  very  diverse  in  their  nature : 
one  is  a  bill  of  lading,  that  goes  along  wdtli  the  goods  and 
gives  the  person  named  a  complete  title  to  1,000  bushels  of 
wheat  of  a  certain  description,  and  the  holder  of  the  bill 
has  the  wheat  and  asks  no  favors  ;  and  the  other  is  a  bill  of 
exchange,  drawn  by  the  creditor  in  Chicago  on  his  debtor  in 
New  York  to  be  sold  to  a  banker,  provided  the  latter  has 
confidence  in  the  two  former  and  a  motive  in  the  shape  of  a 
discount  for  buying  the  bill :  the  bill  of  lading  has  neither 
element  of  credit  in  it,  and  the  bill  of  exchange  has  both 
of  them.  For  another  example,  if  a  man  takes  a  package  of 
valuables  of  any  kind  to  his  banker,  and  asks  him  to  take 
care  of  it,  and  return  it  to  him  or  any  one  else  on  demand, 
no  property-  in  the  valuables  passes  over  to  the  banker,  the 
relation  of  debtor  and  creditor  does  not  arise,  the  banker 
becomes  the  Trustee  or  Bailee  of  the  package,  but  in  no  sense 
its  owner ;  but  if,  in  the  ordinary  case,  a  customer  deposit 
money  with  his  banker,  the  property  in  that  money  passes 
over  absolutely  to  the  banker,  the  relation  of  debtor  and 
ereditor  arises,  the  depositor  receives  a  credit  in  lieu  of  his 
money,  that  is,  a  right  to  demand  in  the  future:  the  nature 
of  the  transaction  in  the  two  cases  is  quite  different. 

As  this  distinction  is  vital,  we  shall  lose  nothing  in  the 
end  if  we  take  even  a  third  example: — The  United  States 
Treasury  receives  silver  dollars  from  any  person  who  chooses 
to  place  them  there,  and  gives  out  what  are  called  “silver 


416 


POLITICAL  ECONOMY. 


certificates  ”  to  the  same  amount  entitling  the  bearer  to  take 
out  the  dollars  again  at  will,  and  the  certificates  become  a 
part  of  the  money  of  the  country.  The  Treasury  is  bound 
to  exercise  due  care  in  the  keeping  of  these  silver  coins,  and 
to  return  them  to  the  holders  of  certificates  on  demand,  just 
as  the  elevator  and  railroad  companies  are  under  legal  obli¬ 
gations  to  show  diligence  in  keeping  and  transporting  the 
wheat  of  our  former  example ;  but  the  United  States  is  not 
debtor  to  the  holders  of  these  certificates  any  more  than  the 
elevator  company  is  debtor  to  the  wheat-shippers,  and  conse¬ 
quently  there  is  no  element  of  Credit  in  these  certificates. 
Just  so  of  the  later  gold  certificates.  On  the  other  hand,  the 
greenbacks  issued  by  the  United  States  are  also  a  part  of  the 
money  of  the  country,  but  they  are  credi£-money,  inasmuch 
as  they  are  a  promise  to  pay  the  bearer  some  time  in  the 
future  so  many  dollars.  The  United  States  is  debtor  to  the 
bearers,  and  these  in  turn  are  creditors ,  and  the  legal-tender 
quality  of  the  greenbacks  does  not  alter  their  character  as  a 
form  of  pure  credit.  Both  the  elements  of  good  faith  and  of 
future  time  inhere  in  the  greenbacks,  as  they  do  also  in  the 
bonds  of  the  United  States,  while  in  the  certificates  they  do 
not  appear. 

This  distinction  between  credit-rights  and  other  rights  is 
well  maintained  in  the  Latin  language  and  in  the  Homan 
law,  while  corresponding  English  terms  are  ambiguous  and 
need  to  be  used  with  care.  In  Latin,  a  true  debt  is  called  a 
Mutuum ,  because  it  lies  between  two  persons,  a  creditor  and 
a  debtor,  and  is  a  credit-right  independently  of  the  question 
of  fact  whether  the  debtor  has  now  any  thing  to  pay  with  or 
not ;  but  a  thing  merely  lent,  when  the  very  thing  lent  is  to 
be  returned,  is  called  in  Latin  a  Commodatum.  The  English 
has  but  the  one  word  Loan  for  two  very  distinct  operations, 
for  the  loan  of  a  book,  for  instance,  which  is  to  be  returned, 
and  which  may  be  reclaimed  if  the  owner  chance  to  find  it, 
that  is,  the  Latin  commodatum;  and  for  the  loan  of  money 
or  other  measurable  thing,  which  is  to  be  returned  in  kind 


CREDIT. 


417 


merely,  which  may  not  be  reclaimed  except  through  the  action 
of  the  borrower,  since  the  ownership  of  that  thing  has  passed 
to  him  completely,  that  is,  the  Latin  mutuum.  The  same 
ambiguity  of  course  inheres  in  the  English  word  Borrow. 
Now,  as  a  debt  is  a  claim  on  a  person  and  not  on  a  thing , 
the  Roman  law  is  true  to  the  nature  of  things  and  to  the 
vital  distinctions  of  our  science  when  it  names  the  right  to 
which  a  mutuum  gives  birth  as  a  jus  in  personam ,  that  is,  a 
right  against  the  person ;  but  it  names  the  legal  obligation 
arising  out  of  a  commodatum  as  a  jus  in  re,  that  is,  a  right 
to  the  ver3*  thing.  So  strongly  is  this  doctrine,  namely,  that 
the  security  of  a  true  debt  lies  against  the  person  and  not 
against  things,  intrenched  in  the  Roman  law,  that  debts  or 
credits  are  even  called  “  nomina ,”  names ,  —  as  when  Ulpian 
says,  “  Nomina  eorum  qui.sub  conditione  vel  in  diem  debent 
et  emere  et  vendere  solemus.”  We  are  accustomed  to  buy 
and  sell  Debts  payable  on  a  certain  day  and  at  a  certain 
event.  The  fundamental  law  of  our  present  national  banks 
explicitly  recognizes  this  old  distinction  by  requiring  the 
banks  to  loan  money  on  personal  security  only,  that  is  to 
say,  no  tangible  things  —  not  even  real  estate  —  may  be 
taken  as  original  security  for  any  loan. 

Now  that  we  have  learned  exactly  what  Credit  is,  we  are 
able  to  see  clearly  the  reasons  why  it  plays  such  a  vast  and 
increasing  part  in  the  ongoing  of  modern  exchanges.  If  it 
were  a  convenience  merely,  making  easier  exchanges  that 
would  take  place  whether  or  no,  it  would  even  then  be  worthy 
of  careful  study ;  but  this  is  only  a  small  part  of  it,  credit 
not  only  convenes  exchanges  but  also  creates  them,  it  brings 
in  something  new  into  the  world  of  traffic,  a  new  class  of 
things  bought  and  sold,  values  that  otherwise  would  not  have 
existed  at  all,  it  enlarges  the  field  of  Political  Economy, 
and  makes  a  new  grand  division  of  time  pay  tribute  to  the 
world  of  sales.  The  Past  is  represented  in  commodities,  the 
Present  in  personal  services,  and  the  Future  in  credits. 
Sales  accordingly  are  not  shut  up  to  the  past  and  the  present, 


418 


POLITICAL  ECONOMY. 


for  the  future  is  also  open  to  them  in  a  certain  degree,  which 
degree  is  marked  by  the  limits  of  rational  probability.  The 
Future  has  within  it  comparative  certainties,  and  it  is  safe 
commercially  to  build  on  these,  and  the  name  of  that  struc¬ 
ture  is  Credit.  The  chief  Gain  for  individuals  and  for  the 
whole  community  in  the  use  of  proper  credit,  and  the  grand 
reason  why  it  never  will  be  disused,  are  found  in  the  fact 
that  a  new  capital  is  thereby  created,  a  new  purchasing- 
power,  something  in  the  world  of  values  additional  to  what 
existed  before.  This  addition  is  not  indeed  unlimited,  but 
it  is  actual  and  great ;  not  unlimited,  because  rational  prob¬ 
abilities  cannot  pierce  very  far  into  the  future ;  but  actual 
and  great,  because  credit-rights  to  future  products  have  a 
present  and  a  ready  value.  The  safe  limitations  of  credit 
can  be  learned  only  from  experience  ;  the  dangers  of  credit 
arise  from  the  uncertainties  of  the  future,  and  the  too  san¬ 
guine  temperaments  of  men  ;  but  the  property  in  credit,  and 
the  propriety  of  credit  and  the  potency  of  credit  are  certain. 
At  least  90  parts  out  of  every  100  of  the  payments  and 
receipts  in  modern  commerce  are  in  some  form  of  credit 
rather  than  in  any  form  of  money ;  in  this  country  between 
1862  and  1882  almost  all  commercial  transactions  were  medi¬ 
ated  either  by  pure  credit  or  credit-money ;  in  Scotland, 
owing  to  their  peculiar  banking-system  and  u  Cash  Credits’* 
to  be  explained  pretty  soon,  coin  plays  an  almost  inapprecia¬ 
ble  part  in  business  transactions ;  while  even  in  England, 
where  bank-notes  for  less  than  £5  are  prohibited,  it  is  esti¬ 
mated  that  not  far  from  95  %  of  commercial  business  is 
mediated  by  pure  credit.  , 

It  is  but  frank  to  state  right  here  that  most  economists 
deny  that  any  new  capital  is  created  through  credit.  They 
deny  that  the  relation  of  debtor  and  creditor  involves  any 
thing  more  than  an  exchange  between  the  two  parties  of 
certain  titles  to  tangible  goods.  Thus  J.  H.  Walker  of  Mas¬ 
sachusetts  in  a  little  book  on  Banking  of  1882  says  :  —  “  A 
man  always  borrows  something  of  intrinsic  value.  What  he 


CREDIT. 


419 


borrows  is  not  a  piece  of  paper ,  whatever  may  be  on  it ,  but 
a  farm,  a  house,  a  factory,  or  a  part  of  them;  a  store,  a 
mine ,  or  goods.  No  man  can  borrow  or  lend  any  thing  else. 
The  borrower  gets  from  the  lender  what  puts  him  in  possession 
of  the  thing  he  seeks,  and  it  must  be  some  one  of  these  things .” 
Again:  —  “So  icith  all  money  ( except  coin).  It  has  no 
value  in  itself.  It  adds  nothing  to  the  capital  of  the  world. 
It  purports  to  be  and  is  only  a  title  to  property,  —  a  con - 
venient  device  for  transferring  the  ownership  of  property .” 
This  author,  though  a  banker,  is  led  astra}r  by  the  useless 
adjective  ‘ 4  intrinsic,  *  ’  by  a  totally  inadequate  analysis  of 
what  is  meant  by  “value,”  and  by  a  narrow  assumption 
that  the  only  objects  bought  or  borrowed  are  corporeal 
“things;”  consequently,  although  he  writes  a  book  to  do 
this,  he  cannot  under  his  view  properly  explain  the  common 
facts  of  deposit  banking  in  his  own  country,  and  would 
come  to  a  dead  standstill  before  the  “Cash  Credits”  of 
Scotland.  Bonamy  Price  of  Oxford  is  a  professed  econo¬ 
mist,  and  a  teacher  of  acknowledged  ability  :  let  us  hear  him 
also:  —  “  Omitting  the  capital  which  a  joint-stock  company 
puts  into  a  bank,  the  banker  possesses  no  capital ,  except  his 
premises  and  any  coin  that  may  be  in  them ,  however  much 
commercial  and  monetary  literature  may  ascribe  capital  to 
banks.  Lines  and  names  in  ledgers,  checks  at  the  Clearing 
House,  debts  due  to  depositors,  debts  due  upon  bills  by  borrow¬ 
ers,  are  neither  wealth  nor  capital.  They  are  words  and  noth¬ 
ing  more.  Incorporeal  property ,  under  which  these  kinds  of 
written  words  have  been  summed  up,  is  not  wealth;  it  is  mere¬ 
ly  a  collection  of  title-deeds,  but  from  which  the  reality  is  ab- 
sent.  The  corpus  is  not  in  those  deeds ,  but  the  right  ta  acquire 
that  property,  even  before  possession  is  obtained ,  is  itself  a 
property.  If  a  title-deed  or  a  mortgage  is  declared  to  be 
actual  wealth  by  Political  Economy,  then  the  sooner  it  is  con¬ 
signed  to  the  waste-basket  the  better .”  1 

This  last  passage  shows  how  the  word  “  wealth”  tangles 

1  Practical  Political  Economy,  1877,  p.  452. 


420 


POLITICAL  ECONOMY. 


men  up  inextricably  who  by  discarding  it  would  become  clear 
thinkers.  Professor  Price  himself  with  great  good  sense  has 
given  up  the  attempt  to  build  up  a  Science  on  that  unde- 
finable  and  abominable  word,  and  so  entitles  his  new  book 
“  Practical  Political  Economy.”  Nevertheless,  the  passage 
just  quoted  concedes  the  whole  matter  in  present  dispute,  — 
“  the  right  to  acquire  that  property,  even  before  possession  is 
obtained ,  is  itself  a  property ,  —  that  is  all  that  we  claim, 
namely,  that  rights  are  property,  and  that  new  rights,  new 
property,  a  new  capital,  are  created  by  Credit.  Our  Oxford 
friend  is  far  too  well  informed  to  contend,  that  a  check  is 
“the  right  to  acquire  possession”  of  any  specific  property 
whatever ;  and  must  admit  that  it  is  a  general  claim  on  the 
banker ,  and  not  on  any  special  fund  in  the  banker’s  hands  ; 
it  follows,  therefore,  that  the  excess  of  the  banker’s  average 
deposits  over  his  average  reserves  to  secure  them,  is  a  new 
creation  of  Credit ,  a  new  resource  of  Production ,  a  purchas¬ 
ing-power  now  available  to  the  banker  not  previously  and 
practically  available  to  anybody. 

It  is  a  comfort  to  be  able  to  quote  against  the  current  and 
superficial  view,  that  credit-claims  are  mere  titles  to  tangible 
things,  the  weighty  words  of  the  Roman  Law  laid  down 
fourteen  centuries  ago  :  —  “  Some  valuable  things  are  corpo¬ 
real,  and  others  incorporeal.  Things  incorporeal  are  those 
ivhich  cannot  be  touched,  such  as  those  ivhich  consist  in  mere 
rights,  as  an  inheritance ,  a  usufruct,  uses,  and  all  obligations 
however  contracted.  Nor  is  it  any  objection  that  corporeal 
things  are  contained  in  an  inheritance ;  but  the  right  of  in¬ 
heritance,  and  the  right  of  using  and  enjoying,  and  the  right 
of  the  obligation  are  incorporeal.”  It  is  also  a  pleasure  to 
be  able  to  state  as  a  fact,  in  opposition  to  the  view  that 
banks  are  handling  in  their  credit  paper  of  all  sorts  just  the 
titles  of  goods  and  chattels  then  and  there  changing  hands, 
that  it  often  happens  in  those  seasons  of  the  year  when 
goods  and  chattels  are  moving  least  that  the  banks  are  han¬ 
dling  most  of  checks  and  bills  and  other  forms  of  credit. 


CREDIT. 


421 


A  credit-right  is  commonly,  but  not  always,  recorded  upon 
paper ;  but  the  paper  is  the  evidence  if  the  right,  and  not 
the  right  itself.  These  paper  instruments  of  Credit  are  of 
two  kinds,  Promises  to  pay,  and  Orders  to  pay  ;  and  we  will 
first  look  at  these  principal  forms  of  Credit  in  order,  and 
then  at  some  further  advantages  and  disadvantages  of 
Credit  itself. 

1.  Book  Accounts.  A  charge  in  a  trader’s  books  is  both 
a  current  and  a  legal  evidence  that  the  person  charged  has 
received  a  certain  service,  and  has  virtually  promised  to 
render  the  sum  charged  as  a  return  service.  This  is  the 
most  common  of  the  forms  of  credit ;  and  if  the  person 
charged  fails  of  his  own  accord  to  complete  the  exchange 
thus  commenced,  the  law,  in  the  absence  of  any  proof  to 
make  the  charge  suspicious,  collects  it,  if  possible,  and  for¬ 
cibly  completes  the  exchange.  The  convenience  of  this  form 
of  credit  is  so  great  that  it  is  not  likely  ever  to  be  disused  ; 
and  as  between  people  who  deal  much  with  each  other  is 
very  useful,  inasmuch  as  their  respective  book  accounts  are 
set  against  each  other  in  settlement,  and  only  balances  are 
required  to  be  cancelled  in  money.  It  is  for  the  benefit 
of  both  creditor  and  debtor,  however,  that  such  credits 
should  be  short  in  time,  and  such  settlements  frequent,  since 
thus  only  does  the  creditor  realize  the  gains  of  the  ex¬ 
change,  and  the  debtor  keep  fair  his  mercantile  name.  If 
it  be  difficult  or  impossible  to  follow  strictly  the  excellent 
financial  maxim,  “Pay  as  you  go,”  the  next  best  thing  to 
that  is,  “  Go  and  pay.”  The  gains  of  au  exchange  are 
lessened,  or  its  terms  become  more  onerous,  just  in  pro¬ 
portion  as  delay  in  its  completion  is  experienced  or  ex¬ 
pected.  Book  accounts  are  subject  also  to  this  disadvantage 
as  compared  with  other  forms  of  credit,  that  their  number 
and  amount  as  agaiust  any  person  are  less  likely  to  become 
publicly  known,  and  therefore  he  is  more  likely  to  be  trusted 
in  this  form  by  others  beyond  the  point  of  his  solvency  and 
their  safety. 


422 


POLITICAL  ECONOMY. 


2.  Promissory  Notes  on  interest.  These  are  issued  ny  in¬ 
dividuals,  corporations,  and  nations.  If  the  principal  be 
deemed  secure,  that  is,  if  there  be  a  thorough  trust  on  the 
part  of  the  holder  in  the  maker  of  the  note,  and  if  the  in¬ 
terest  be  promptly  paid,  the  time  of  the  payment  of  the 
principal  becomes  a  matter  of  comparative  indifference,  be¬ 
cause  the  interest  is  compensation  for  delay,  and  is  often 
tiie  motive  on  the  part  of  the  holder  for  rendering  that  ser¬ 
vice  of  which  the  note  is  evidence.  Indeed  a  long  obliga¬ 
tion  is  commonly  preferred  to  a  short  one,  and  bears  a 
higher  price.  When  a  note  is  sold  by  the  original  holder 
it  becomes  payable  to  the  purchaser,  or  to  each  subsequent 
purchaser  in  turn,  and  thus  may  run  a  devious  round,  may 
play  a  part  in  many  commercial  transactions,  may  be  set  off 
by  the  transient  holder  against  a  debt  owed  by  him  and  thus 
cancel  that,  and  when  itself  is  cancelled  by  ultimate  set-off 
or  by  any  other  mode  of  payment  the  last  holder  takes  the 
return  for  the  service  originally  rendered  by  the  first  holder. 
The  promissory  notes  of  individuals  are  frequently  discount¬ 
ed  by  banks  in  a  manner  to  be  presently  explained.  These 
are  always  for  short  times,  and  are  debts  bought  by  banks 
on  the  personal  security  of  the  names  upon  the  notes.  The 
notes  are  founded  on  the  relation  of  debtor  and  creditor, 
which  is  always  a  personal  relation,  and  so  differ  in  their 
nature  from  a  mortgage ,  which  is  a  qualified  title  to  a  specific 
piece  of  property,  usually  real  estate.  A  note  secured  by  a 
mortgage  is,  as  it  were,  absorbed  into  the  mortgage,  and  be¬ 
comes  another  thing  from  a  common  promissory  note,  or 
commercial  paper,  as  it  is  called.  A  mortgage  rests  there¬ 
fore  on  other  grounds  than  a  commercial  trust  in  the  good 
faith  of  a  person. 

Corporations  also  issue  promissory  notes,  and  as  such 
issuers  become  moral  persons  entitled  to  confidence  accord¬ 
ing  to  the  character  and  purposes  of  the  individual  corpora¬ 
tors  and  the  financial  means  and  methods  of  the  corporation. 
Their  short  notes  are  often  discounted  by  bankers  on  the 


CREDIT. 


423 


same  ground  as  the  notes  of  individuals  are  discounted ;  and 
their  long-time  obligations,  commonly  called  Bonds ,  are 
bought  and  sold  in  the  market  like  commodities.  Most 
railroad  bonds,  of  which  immense  quantities  are  in  the 
markets  of  the  world,  rest  back  also  for  their  security  upon 
mortgages  of  the  real  estate  of  the  corporations  made  over  to 
the  holders  of  the  bonds,  and  thus  differ  from  income  bonds 
for  whose  payment  the  net  income  of  the  corporations  is  spe¬ 
cially  pledged,  and  differ  still  more  from  simple  bonds  resting 
on  personal  security  only.  Certificates  of  Stock  in  corpora¬ 
tions  are  not  credit  documents  at  all,  but  are  mere  evidences 
of  ownership ,  and  are  in  that  respect  like  deeds  to  land. 

States  and  Nations  are  moral  persons,  and  as  such  issue 
promissory  notes  on  interest,  commonly  called  in  this  coun¬ 
try  bonds  and  in  Great  Britain  funds  and  in  some  countries 
stocks.  These  are  pure  credit.  Nations  give  no  mortgages. 
Yet  they  often  borrow  at  a  less  rate  of  interest  than  individ¬ 
uals  or  corporations,  as  is  seen  in  the  fact  that  British  con¬ 
sols  bear  but  3%  (though  they  have  rarely  sold  at  full  par), 
and  in  the  fact  that  United  States  bonds  at  3%  were  worth  a 
premium  in  1882.  The  United  States  borrowed  of  its  own 
citizens  in  18G2-65,  both  inclusive,  about  $2,500,000,000  on 
bonds  at  different  rates  of  interest  and  at  different  times  of 
repayment :  some  bore  gold  interest  at  6  °J0 ,  government 
reserving  the  right  to  pay  the  principal  five  years  and  pledg¬ 
ing  itself  to  pay  it  twenty  years  from  date,  and  so  these 
were  called  “Five-twenties;”  others  bore  gold  interest  at 
5%,  becoming  payable  at  ten  and  demandable  at  forty 
years,  and  so  were  called  “Ten-forties;”  and  still  others 
bore  greenback  interest  at  7t3^j%,  the  principal  payable  in 
greenbacks  at  three  years,  or  fundable  in  gold  sixes,  at  the 
option  of  the  holders,  and  these  were  named  “  Seven-thir¬ 
ties.”  Over  $90,000,000  of  this  last  kind  of  bonds  were 
subscribed  for  by  the  American  people  in  the  course  of  a 
single  week  in  the  spring  of  1865.  The  whole  of  our  national 
debt  issued  prior  to  1865  was  made  payable  on  a  day  cer- 


424 


POLITICAL  ECONOMY. 


tain ;  the  so-called  consols  of  1865  and  1867  and  1868  were 
pa}’able  not  more  than  forty  years  from  date  ;  while  all  the 
bonds  authorized  from  1870  to  1882  were  Consols  proper, 
whose  peculiarity  is,  that  they  never  fall  due  so  as  to  be¬ 
come  a  claim  for  the  principal  against  the  government,  but 
after  a  day  fixed  or  on  a  condition  fixed  are  pajmble  u  at  the 
pleasure  of  the  United  States.”  The  term  ‘ 4  consols  ”  is  a 
contraction  of  “  consolidated  annuities,”  the  act  to  create 
which  at  3  %  out  of  a  confused  mass  of  public  debts  passed 
the  English  Parliament  in  1757. 

The  separate  States  of  our  Union  issue  their  own  bonds 
for  various  purposes,  the  partial  or  entire  repudiation  of  which 
at  different  times  on  the  part  of  several  of  the  States  has 
justly  damaged  their  credit,  and  even  the  good  name  of  the 
whole  people  of  the  United  States. 

3.  Bank  Bills.  These  are  a  form  of  promissory  notes  not 
on  interest,  and  thus  differ  from  the  notes  of  ordinary  cor¬ 
porations  ,  but  the  bank  offers,  as  a  sort  of  compensation 
for  the  privilege  of  circulating  notes  not  on  interest,  to 
convert  them  into  coin  on  demand  of  any  holder.  It  is  this 
proffered  convertibility  into  coin  that  enables  the  promissory 
notes  of  a  bank  to  circulate  as  money,  while  the  notes  of 
other  corporations  and  individuals  equally  solid  and  solvent 
do  not  circulate  as  money.  It  must  be  borne  in  mind,  how¬ 
ever,  that  the  offer  to  convert  them  into  cash  does  not  essen¬ 
tially  alter  the  nature  of  bank-notes ;  they  are  a  form  of 
credit ;  and  although  they  are  commonly  issued  against 
another  form  of  credit,  namely,  against  the  interest-bearing 
notes  of  individuals  who  resort  to  the  bank  for  discount, 
this  only  complicates  the  exchange  without  changing  its 
nature.  It  is  an  instance  of  exchanging  one  form  of  credit 
for  another  which  happens  to  have  a  greater  currency  or 
validity  than  the  first,  and  for  this  superiority  of  the  bank 
credit  the  individual  credit  pays  an  interest,  in  other  words, 
is  discounted ;  and  such  exchanges  of  one  form  of  paper 
credit  for  another  with  or  without  a  premium,  may  go  on 


CREDIT. 


425 


indefinitely ;  as  credit  money,  such  paper  may  serve  as  a 
medium  in  many  exchanges  ;  but  ultimately,  and  before  the 
entire  series  of  transactions  is  closed,  such  paper  is  to  be 
redeemed  in  coin,  or  taken  in  by  the  banker  in  payment  of 
some  debt  due  to  him,  in  both  which  cases  it  is  extinguished 
as  an  instrument  of  credit. 

The  Bank  of  England  keeps  out  in  circulation  on  the  aver¬ 
age  £25,000,000.  It  has  been  computed  that  the  average 
length  of  life  of  a  Bank  of  England  bill  between  issue  and 
redemption  is  about  three  days.  The  joint-stock  and  private 
banks  of  England  and  Wales  circulate  besides  rather  more 
than  £4,000,000  of  bills.  No  bank  bill  is  legal  in  England 
and  Wales  for  less  than  £5.  The  ten  Scotch  banks  and  their 
branches  put  out  in  bills  about  £5,000,000  on  the  average ; 
six  out  of  the  nine  Irish  banks  and  their  branches  issue 
perhaps  twice  as  much  as  the  Scotch  banks  ;  and  both  are 
allowed  to  put  out  £1  bills.  The  associated  national  banks 
of  the  United  States  (no  others  can  issue  bills  in  this  coun¬ 
try)  owed  the  people  in  that  form  $300,000,000  in  1882. 

4.  Bank  Deposits.  Here  we  must  go  carefully.  We  have 
now  come  to  the  central  function  of  Banking,  and  this  is  the 
place  to  understand  clearly  both  what  a  Bank  is  and  who  a 
Banker  is.  The  word  “  bank  ”  meant  originally  a  mass,  an 
accumulation,  —  as  we  still  say,  a  sand-bank ,  and  the  banks 
of  a  river.  When  first  applied  to  commercial  transactions, 
the  word  had  a  somewhat  different  meaning  from  what  it  has 
at  present,  although  the  idea  of  credit  has  inhered  in  it  from 
the  first.  In  1171,  the  Republic  of  Venice,  being  at  war, 
ordered  a  forced  loan  from  its  citizens,  and  agreed  to  pay 
interest  on  it  at  b°/0.  Certificates  were  issued  for  the  sums 
paid  in,  and  public  commissioners  were  appointed  to  manage 
the  payment  of  the  interest  and  the  transfers  of  the  certifi¬ 
cates,  which  were  made  salable.  The  Italian  word  applied 
to  such  a  public  loan  is  monte,  but  as  the  Germans  were  then 
strong  in  Italy,  the  Teutonic  equivalent  bank  came  to  be  used 
alongside  of  it  and  instead  of  it.  It  meant  this  common 


426 


POLITICAL  ECONOMY. 


contribution  to  the  wants  of  the  state,  represented  by  the 
mass  of  certificates,  and  came  to  be  applied  also  to  the  place 
•where  the  commissioners  paid  the  interest  and  transferred 
the  shares.  Two  other  such  loans  were  contracted  after¬ 
wards,  and  an  English  writer  in  1646,  quoted  by  Macleod, 
speaks  of  the  “three  bankes  of  Venice, ”  meaning  these 
three  public  debts,  including  the  evidences  of  them  and  the 
place  where  they  were  managed. 

We  have  already  seen,  that  the  Bank  of  England  was  an 
incorporation  of  those  persons  willing  to  subscribe  to  a 
public  loan.  In  ten  days  the  list  of  subscribers  was  full. 
£1,200,000  were  advanced  by  them  to  the  government,  and 
they  received,  besides  the  interest  on  their  loan,  certain  privi¬ 
leges  as  a  Company,  on  which  they  and  their  successors  have 
been  operating  ever  since.  This  was  the  beginning  of  the 
national  debt  of  England  ;  and  a  new  source  of  power  revealed 
itself  in  the  discovery  of  the  resources  of  the  national  credit ; 
from  that  day  to  this  all  public  loans  are  negotiated  and 
managed  through  the  Bank  of  England  ;  and  the  legal  name 
of  the  British  Funds  is,  “  Bank  Annuities.”  In  one  word, 
the  Bank  of  England  is  a  debt,  with  certain  other  functions 
connected  with  its  management ;  and  secondarily,  as  before, 
the  building  or  place  where  its  operations  are  conducted.  Just 
so,  the  first  Bank  of  the  United  States  was  really  an  incor¬ 
poration  of  persons  who  held  the  then  new  government  stock. 
Three-fourths  of  the  subscription  of  individuals  to  the  bank 
stock  must  be  in  government  stocks.  Our  Funding  system 
and  our  Banking  system  started  together :  Hamilton  was  the 
author  of  both.  Thus  the  word  “bank”  had  originally  no 
connection  with  paper  money,  but  only  with  the  evidences 
of  a  public  debt ;  the  Bank  of  England  had  and  has  to  do 
with  both  these  forms  of  credit ;  before  the  Revolutionary 
war,  the  word  meant  in  this  country  a  batch  of  paper  money 
issued  by  a  government  or  a  corporation  ;  since  Hamilton’s 
time,  it  has  meant  both  other  operations  in  credit  and  the 
issuing  of  paper  money;  while  the  present  tendency  of 


CREDIT. 


427 


language  in  this  and  other  countries  is  to  confine  the  word 
“hank”  to  the  buying  and  selling  of  credits  other  than 
paper  money.  The  whole  history  of  the  word  connects  it 
with  credits ,  but  not  necessarily  with  credit-money.  We  are 
now  ready  for  definitions. 

A  Bank  is  an  institution  for  tiie  creation,  management, 
and  extinction  of  Credits.  Money  of  any  kind  plays  a 
very  subordinate  part  in  the  general  operation  of  banks, 
which  live  and  move  and  have  their  being  in  pure  credits. 
Consequently,  Bankers  are  dealers  in  credits.  As  a  merchant 
is  a  buyer  and  seller  of  commodities,  so  a  banker  is  a  buyer 
and  seller  of  credits,  buying,  (1)  some  credits  with  other 
credits,  (2)  some  credits  with  money,  and  (3)  money  also 
with  credits.  As  merchants  begin  by  laying  in  stocks  of 
goods  of  the  kinds  they  purpose  to  deal  in  and  offering 
them  for  sale,  so  bankers  begin  by  bringing  together  money 
and  credits  of  their  own  in  order  to  attract  to  themselves  in 
the  way  of  buying  and  selling  the  money  and  credits  of  other 
people.  In  order  to  deal  successfully  in  credits  the  banker 
must  have  credit ,  that  is,  he  must  have  the  reputation  of  hav¬ 
ing  property  of  his  own,  and  of  being  an  honest  and  careful 
manager  of  his  own  affairs  and  of  the  affairs  of  others  so 
far  as  they  are  intrusted  to  him.  Most  bankers  become 
known  owners  of  public  stocks,  and  in  many  cases  are  re¬ 
quired  to  own  such  stocks,  and  this  gives  them  a  kind  of 
credit  scarcely  to  be  reached  by  the  ownership  of  ordinary 
property.  Thus,  the  Bank  of  England  holds  £15,000,000 
of  public  securities ;  and  each  one  of  the  national  banks  of 
this  country  is  required  to  own  not  less  than  $30,000  of  its 
capital  stock  in  the  bonds  of  the  United  States,  though  no 
bank  is  now  required  to  hold  more  than  $50,000  in  this 
form.  Each  of  these  banks  must  also  have  a  paid-up  capital 
of  not  less  than  $100,000,  and  in  cities  of  50,000  people 
their  capital  must  not  be  less  than  $200,000  each,  except 
that  in  places  having  less  than  6,000  inhabitants  banks  with 
not  less  than  $50,000  capital  may  be  organized  at  the  discre- 


428 


POLITICAL  ECONOMY. 


t.ion  of  the  Secretary  of  the  Treasury.  The  main  purpose 
of  all  this  is  to  secure  strong  organizations  fitted  to  draw 
the  confidence  of  the  communities  in  which  they  are  placed 
and  to  attract  the  Deposits  of  the  people  to  the  banks. 

Now,  as  was  just  said,  the  central  function  in  banking  is 
for  the  banker  to  receive  his  customer’s  money  and  credits 
becoming  due,  and  to  render  in  return  for  these  a  credit, 
that  is,  a  right  to  demand  from  him  an  equal  sum  at  a  future 
time.  The  evidence  of  this  right  is  entered  on  the  banker’s 
books,  and  thus  becomes  a  Deposit.  The  ownership  of  the 
money  and  of  the  credits  deposited  passes  over  completely 
from  the  customer  to  the  banker.  The  latter  has  the  right  to 
do  just  what  he  pleases  with  them  ;  only  his  entry  of  the  trans¬ 
action  in  his  books  is  a  virtual  promise  to  pay  that  amount 
on  demand  to  the  customer,  and  he  must  be  ready  to  respond 
to  his  customer’s  call,  whenever  the  latter  demands,  not  his 
own  money,  but  so  much  of  his  banker’s  money.  A  deposit, 
therefore,  is  not  the  thing  deposited,  but  a  credit.  It  is  the 
depositor’s  property  and  the  banker’s  promise.  It  is  in  this 
way  that  a  banker  buys  money  with  credit.  The  motive  that 
leads  the  customer  to  intrust  his  money  to  the  banker  is  the 
desire,  not  to  have  that  specific  money  kept  safely,  but  to  have 
the  right  to  call  on  the  banker  for  such  sums  (not  to  exceed 
the  deposit  in  the  aggregate)  and  at  such  times  as  may  suit 
his  own  convenience.  He  has  such  confidence  in  the  integrity 
and  solvency  of  the  banker,  and  finds  it  so  practically  con¬ 
venient  to  have  dealings  with  him,  that  he  prefers  a  credit  on 
him  for  the  amount  to  the  possession  of  the  money  itself. 
The  motive  of  the  banker  to  receive  his  customers’  funds  on 
these  terms  is  the  fact  that  he  can  safely  use  a  large  portion 
of  these  funds  in  other  operations  in  credit  profitable  to  him¬ 
self,  and  at  the  same  time  be  sure  of  being  able  to  meet  his 
customers’  calls  for  money.  He  finds  by  experience  that 
many  of  his  customers  wish  always  to  have  a  balance  in  his 
hands ;  that  while  some  of  them  are  constantly  drawing  on 
him  for  cash,  others  of  them  are  as  constantly  depositing 


CREDIT. 


420 


with  him  in  cash,  and  that  consequently  he  can  use  with 
safety  a  part  of  the  money  he  has  purchased  with  his  credit 
to  purchase  other  credits  with. 

Deposit-banking,  accordingly,  is  not  only  convenient  and 
safe  for  the  depositor,  but  also  profitable  for  the  banker,  and 
also  a  great  gain  for  the  community  at  large  ;  inasmuch  as  a 
new  capital  has  been  thereby  created,  new  values  which  could 
not  otherwise  have  existed  at  all.  Were  there  no  deposit- 
bank,  every  man  now  a  customer  of  it  would  keep  his  own 
reserves  by  himself  for  contingencies  :  now  these  reserves 
are  all  aggregated  in  the  bank,  and  the  banker  finds  that  he 
can  use,  say  two-thirds  of  the  whole,  and  still  answer  every 
customer’s  call.  It  is  abstractly  possible  that  a  banker  might 
be  called  upon  to  pay  all  his  deposit-liabilities  at  once,  which 
would  break  him  of  course;  so  it  is  abstractly  possible  that 
all  the  lives  insured  in  a  Life  Insurance  Company  might  ter¬ 
minate  in  one  day,  in  which  case  no  company  in  the  world 
could  meet  its  obligations ;  and  so  it  is  abstractly  possible 
that  all  the  houses  insured  in  a  Fire  Insurance  Company 
might  be  burned  up  in  a  single  night,  which  would  cause  the 
collapse  of  the  soundest  company ;  but  in  all  these  cases  of 
possibility,  there  is  a  certainty  that  the  possibility  will  not 
become  a  fact.  If  a  banker  misjudges  for  his  locality  the 
ratio  of  reserves  to  deposits,  he  must  sell  some  of  the  securi¬ 
ties  bought  with  the  excess,  or  borrow  money  on  them. 

Surprisingly  large  is  the  amount  of  bank  deposits  in  the 
leading  commercial  nations  of  the  world.  The  average  pub¬ 
lic  and  private  deposits  of  the  Bank  of  England,  on  which 
no  interest  is  paid  by  the  Bank,  reaches  about  £40,000,000. 
The  ten  joint-stock  banks  of  London  have  about  £80,000,000 
in  private  deposits,  of  which  those  to  remain  some  time  take 
an  interest,  but  those  lodged  on  current  accounts  and  on  call 
take  none.  Scotland  has  carried  deposit-banking  further  and 
to  greater  advantage  than  any  other  country  in  the  world. 
There  are  now  no  private  banks,  but  the  ten  joint-stock 
banks  with  their  numerous  branches  scattered  to  every  vil- 


430 


POLITICAL  ECONOMY. 


f 

lage  in  the  land  hold  about  £70,000,000  in  constant  deposit, 
on  which  interest  is  allowed,  and  the  habit  of  keeping  one’s 
account  with  a  banker  is  universal  with  the  people.  No  one 
%  thinks  of  keeping  money  to  any  amount  in  his  house  or  about 
his  person,  and  consequently  house-breaking  and  highway 
robbery  have  almost  ceased.  Bankers  even  attend  all  the 
great  fairs  to  receive  deposits  and  pay  checks.  Credit  both 
in  this  form  and  in  another  soon  to  be  described  treads  its 
utmost  verge  in  Scotland.  Although  the  custom  of  keeping 
deposits  with  bankers  and  drawing  checks  against  them  has 
not  gone  nearly  so  far  in  this  country  as  in  Scotland,  yet  the 
aggregate  of  individual  deposits  in  the  national  banks  alone, 
Oct.  1,  1881,  was  $1,070,997,531  (Knox).  It  is  evident, 
that  wherever  deposit-banking  prevails,  and  to  the  degree  in 
which  it  prevails,  less  money  is  required  to  effect  the  exchanges 
of  the  people. 

5.  Bank  Discounts.  The  paper  that  is  discounted  by 
bankers  may  be  either  the  promissory  notes  already  charac¬ 
terized,  or  the  bills  of  exchange  soon  to  be  characterized, 
but  the  function  of  discount  is  so  peculiar  that  the  paper 
subjected  to  it  must  be  separately  enumerated  in  a  classifi¬ 
cation  of  the  instruments  of  credit.  The  discounting  of 
paper  is  the  second  essential  function  of  banking ;  and  it  is 
more  in  accordance  with  genuine  banking  to  pass  the  price 
of  the  paper  to  the  seller’s  credit  in  the  form  of  a  deposit, 
that  is,  to  buy  one  credit  by  creating  another,  than  to  pay 
the  money  over  at  once,  and  thus  buy  credits  with  money. 
Those  who  do  the  latter  are  called  in  England  bill-discount¬ 
ers  rather  than  bankers,  but  most  of  our  bankers  do  both, 
though  there  is  a  strong  tendency  towards  the  separation  of 
the  two  in  this  country  also.  Manufacturers  and  wholesale 
merchants  usually  sell  goods  on  time ,  as  it  is  called,  say 
three  months.  A  debt  is  thus  created.  The  manufacturei 
or  wholesaler  is  creditor  and  the  jobber  or  retailer  is  debtor. 
But  a  debt  is  property ;  and  the  creditor  in  this  case  wishes 
to  avail  himself  of  his  property  at  once  for  further  produc- 


CREDIT. 


431 


tion ;  so  he  either  takes  a  note  from  his  debtor,  or  draws  a 
bill  upon  him,  and  this  piece  of  property  is  ready  for  sale. 
The  banker  buys  it,  that  is  to  say,  the  creditor  passes  over 
to  him  the  right  to  demand  payment  of  the  debtor  at  the  end 
of  three  months,  and  receives  from  the  banker  either  money 
or  so  much  of  the  banker’s  credit,  that  is,  a  deposit  in  the 
creditor’s  favor  on  the  banker’s  books.  For  furnishing  this 
creditor  either  with  ready  money  or  a  more  available  credit 
in  lieu  of  his  mercantile  paper,  the  banker  charges  a  percent¬ 
age.  This  is  discount.  Discount  is  the  difference  between 
the  face  and  the  price  of  the  paper.  This  is  the  chief  source 
of  profit  in  ordinary  banking.  When  the  paper  matures,  the 
banker  realizes  from  the  debtor  its  full  face.  The  following 
is  the  form  of  a  bankable  note :  — 


North  Adams,  Mass.,  Nov.  10,  1882. 

Three  months  after  date  I  promise  to  pay  to  the  order  of 
Joshua  Swan,  one  thousand  dollars,  payable  at  the  Adams 
National  Bank,  value  received. 

LEANDER  ALLEN. 

Due  Feb.  10 /is* 


Swan  may  put  his  name  on  the  back  of  this  note,  and 
then  it  is  discounted  on  the  strength  of  the  two  names, 
Allen  and  Swan.  It  is  expected  that  Allen  will  pay  the 
note  to  the  bank  when  due  ;  but  if  he  does  not,  then  Swan 
is  bound  for  the  amount.  Two  names  are  almost  always, 
not  always,  requisite  to  an  acceptable  note  for  discount ; 
and  more  names  merely  strengthen  the  note,  since  it  is  dis¬ 
counted  on  the  combined  validity  of  all  the  names  upon  it. 
The  chief  advantage  in  Discount  is,  that  it  tends  to  make 
all  capital  active  and  thus  productive.  It  enables  the  banks 
to  sell  their  credit  and  make  a  gain,  or  to  use  a  part  of  their 
money  deposits  to  buy  mercantile  paper  with  and  get  an 


432 


POLITICAL  ECONOMY. 


interest ;  it  enables  the  dealers  in  commodities  to  realize  at 
once  on  what  they  have  sold  on  time  minus  the  discount ; 
and  by  means  of  accommodation  notes  or  bills,  which  only 
differ  from  others  in  that  there  is  no  actual  debt  between  the 
parties,  some  men  may  swell  the  volume  of  their  business 
temporarily.  The  discount  line  of  the  2,132  national  banks 
Oct.  1,  1881,  was  $1,169,022,303  (Knox).  Bankers  have 
not  always  credit  enough  or  money  of  depositors  enough  to 
buy  in  either  mode  all  the  mercantile  paper  that  is  offered,  in 
which  case,  they  raise  the  rate  of  discount  unless  the  law  for¬ 
bids,  or  accommodate  regular  customers  and  depositors  first, 
or  buy  of  all  who  are  “  good  ”  a  certain  proportion  only 
It  is  thus  in  part  through  the  purchase  of  discountable 
notes  for  money  that  bauks  derive  their  character  as  money¬ 
lenders.  Also,  such  reserve  sums  as  they  do  not  wish  to 
invest  in  negotiable  paper,  on  account  of  the  time  involved 
before  such  paper  matures,  banks  frequently  loan  on  call  to 
those  who  have  salable  collateral  securities  to  pledge.  So 
far  forth  they  become  direct  money-lenders.  The  following 
is  the  form  of  such  pledge  :  — 


Troy,  N.Y.,  Nov.  10,  1882. 

On  demand  we  promise  to  pay  to  the  Bank  of  Troy,  or 
order,  five  thousand  dollars,  for  value  received,  with  interest  at 
the  rate  of  six  per  cent  per  annum,  having  deposited  with  said 
bank,  as  collateral  security,  with  authority  to  sell  the  same,  at  the 
Brokers’  Board,  or  at  public  or  private  sale,  or  otherwise  at  said 
hank’s  option,  on  the  non-performance  of  this  promise,  and  with¬ 
out  notice,  — 

10  shares  N.  Y.  Central, 

55  do.  Mich.  Southern. 

JOHN  SMITH  &  CO. 


6.  Bills  of  Exchange.  So  far  we  have  been  looking  at 
'promises  to  pay,  and  will  now  look  at  orders  to  pay,  but 
there  is  practically  very  little  difference  between  them.  A 
bill  of  exchange  is  a  written  instrument  designed  to  secure 


CREDIT. 


433 


the  payment  of  a  distant  debt  without  the  transmission  of 
money,  being  in  effect  a  setting  off  or  exchange  of  one  debt 
against  another.  Thus,  suppose  A  in  Boston  owes  B  in 
New  York  $1,000,  and  another  party,  C  in  New  York,  owes 
A  in  Boston  a  like  sum  ;*  it  is  not  necessary  that  A  should 
send  the  money  to  B  to  cancel  his  debt,  and  C  send  the 
money  to  A  for  a  like  purpose  ;  the  two  debts,  by  means  of 
a  bill  of  exchange,  are  set  off  against  each  other,  and  both 
transactions  are  closed  without  sending  any  money  from  one 
city  to  the  other.  A  draws  a  bill  upon  C,  directing  him  to 
pa}'  B  $1,000,  and  sends  this  bill  to  B,  who,  if  the  bill  be 
drawn  on  sight,  presents  it  to  C  for  payment ;  if  on  time, 
presents  it  to  C  for  acceptance,  who  then  pays  it  at  maturity. 
An  acceptance  is  written  upon  the  face  of  a  bill,  as  an 
indorsement  is  upon  its  back.  A  is  called  the  drawer  of 
the  bill,  C  the  drawee  until  he  has  accepted,  and  then  the 
acceptor,  and  B  is  the  payee.  It  is  not  often  that  the  same 
person,  as  A,  happens  to  owe  another  person  in  a  distant 
place,  as  B,  exactly  the  same  sum  as  is  owed  him  in  that 
place  by  a  third  person,  as  C  ;  but  by  two  bills  of  exchange, 
one  drawn  by  each  creditor  on  his  own  debtor,  and  then  set 
off  against  the  other,  substantially  the  same  advantage  is 
reached  as  if  it  always  happened  so.  Nearly  all  these  bills 
come  into  banks  in  the  way  of  ordinary  business,  either  for 
discount  or  collection,  and  are  adjusted  through  bank  bal¬ 
ances.  The  following  is  the  form  of  an  inland  bill  of 
exchange : — 


<n>o,uw.  Pittsfield,  Mass.,  Oct.  1,  1882. 

Four  months  after  date  pay  to  the  order  of  John  Kent 
three  thousand  dollars,  value  received,  and  charge  the  same  to 
account,  of 

DAN  STORKS  &  CO. 

To  Eli  Tiiipp,  Boston,  Mass. 


434 


POLITICAL  ECONOMY . 


In  this  case,  Kent  may  indorse,  which  is  a  sign  that  he 
sells  his  right  in  the  bill ;  Tripp  accepts,  which  is  a  pledge 
that  he  will  pay  the  sum  to  the  holder  when  the  bill  is  due ; 
and  the  banker  or  other  buyer  steps  into  all  the  original 
right  of  Kent,  whose  claim  lay  against  Storrs  &  Co.  and 
Tripp.  The  drawer  of  a  bill  is  always  creditor,  the  acceptor 
is  always  debtor,  and  the  payee  again  is  creditor.  A  bill  of 
exchange  is  the  formal  sale  of  a  debt.  The  claimant  passes 
over  for  value  received  his  claim  on  a  second  person  to  a 
third  person,  who  thus  becomes  for  the  time  being  owner  of 
the  debt.  He  can  indorse  this  claim  over  to  a  fourth  per¬ 
son,  or  by  an  indorsement  in  bla7iJc ,  as  it  is  called,  that  is, 
by  merely  writing  his  name  upon  the  back  of  the  bill,  he  can 
make  it  payable  to  bearer.  If  time  bills  are  discounted,  it  is 
on  the  joint  credit  of  drawer  and  acceptor.  Besides  their 
convenience  in  settling  debts  between  distant  places  without 
the  costly  transmission  of  money,  and  besides  their  useful 
function  of  enabling  a  debt  due  from  one  person  to  avail 
the  creditor  for  obtaining  credit  from  a  third  person  in  dis¬ 
count,  it  is  plain,  that  the  common  use  of  bills  of  exchange 
in  all  their  forms  releases  from  use  large  amounts  of  money 
that  would  otherwise  be  needful  in  trade.  The  less  money 
in  use  the  better,  because,  if  coin,  it  costs  much  to  mint 
and  maintain  it,  and  if  paper,  it  is  difficult  to  make  and  sus¬ 
tain  it.  Bankers  sometimes  charge  what  they  call  “  ex¬ 
change  ”  for  settling  debts  between  distant  places  in  the 
same  country,  when  one  place,  say  Chicago,  draws  more 
bills  on  another  place,  say  New  York,  than  suffice  to  cancel 
the  bills  drawn  at  that  time  by  New  York  on  Chicago ;  the 
point  at  which  the  larger  indebtedness  lies  is  the  point  for 
sending  drafts  to  which  banks  naturally  charge  a  percentage  ; 
this  is  the  principle  working  all  the  time  in  inland  exchange, 
as  we  shall  see  in  a  moment  that  it  works  in  foreign  ex- 
change  also ;  but  there  is  a  principle  counterworking  this 
and  often  neutralizing  it  entirely,  namely,  that  the  chief 
settling  place  and  commercial  centre  of  a  country,  as  New 


CREDIT . 


435 


York,  draws  towards  itself  from  the  whole  circuit  with  such 
force,  everybody  wanting  a  balance  there  and  having  occa¬ 
sion  to  send  funds  thither,  that  drafts  on  such  a  place  are 
apt  to  bear  a  premium  without  reference  to  its  comparative 
indebtedness  at  the  time. 

Very  similar  to  these  inland  bills  in  their  general  course 
and  usefulness  are  foreign  bills  of  exchange,  which,  as  an 
important  topic,  we  must  now  study  with  care.  Commercial 
relations  between  two  countries,  say  for  example,  France 
and  England,  always  give  rise  to  a  mutual  indebtedness  of 
their  merchants,  and  if  these  debts  were  all  to  be  paid  by  the 
actual  sending  of  money  to  and  from,  there  would  have  to 
be  a  constant  and  expensive  outward  and  inward  flow  of  the 
precious  metals  in  respect  to  each  country,  wrhich  necessity 
is  neatly  obviated  by  the  use  of  bills  of  exchange,  and  coin 
is  only  transmitted  to  settle  the  balances  on  whichever  side 
there  is  an  excess  of  debt.  French  dealers  are  alwa}Ts  send¬ 
ing  goods  to  England,  and  English  dealers  goods  to  France  ; 
and  for  what  they  send  to  England  the  French  merchants  draw 
bills  on  the  parties  to  whom  the  goods  are  consigned,  and 
the  English  merchants  draw  similar  bills  on  their  debtors  in 
France ;  these  bills  are  bought  up  by  bankers  or  brokers 
in  either  country,  and  exposed  again  for  sale  to  any  parties 
who  may  have  debts  to  pay  in  the  other  country.  Thus  bills 
on  London,  in  other  words,  on  English  debtors,  are  always 
for  sale  in  France  ;  and  bills  on  France,  that  is,  on  French 
debtors,  are  always  for  sale  in  London  ;  the  mutual  debtors 
of  the  two  countries,  therefore,  instead  of  sending  coin  to 
cancel  their  debts,  buy  and  transmit  these  bills. 

Suppose  Pierre  &  Co.,  of  Paris,  send  a  cargo  of  wine  to 
Barclay  &  Co.,  of  London,  worth  £5,000  in  English  money ; 
the  London  firm  thereby  becomes  indebted  to  the  Paris  firm 
to  that  amount,  and  Pierre  &  Co.  draw  a  bill  in  francs  on 
Barclay  &  Co.  for  the  equivalent  of  £5,000  ;  if  they  them¬ 
selves  have  no  debt  to  pay  in  London,  they  sell  this  bill  to  a 
Paris  broker  (if  the  exchange  be  then  at  par)  for  its  face, 


436 


POLITICAL  ECONOMY. 


i 

minus  interest  for  the  time  it  lias  to  run  ;  and  this  broker  is 
now  ready  to  sell  the  bill  again  to  anybody  in  Paris  who  has 
a  debt  to  pay  in  London ;  and  the  person  in  London  who 
receives  it  in  liquidation  of  a  French  debt  to  him,  presents 
it  at  maturity  to  Barclay  &  Co.  for  payment.  A  bill  drawn 
in  London  for  a  cargo  of  hardware  sent  to  Paris,  is  similarly 
negotiated  with  a  London  broker,  and  finds  its  way  similarly 
to  France,  in  payment  of  some  English  debt,  and  ends  its 
career  when  it  reaches  the  French  firm  on  which  it  was  origi¬ 
nally  drawn.  We  are  now  in  position  to  understand  clearly 
what  is  meant  by  the  par  of  exchange.  The  merchants  in 
Paris,  who  have  debts  due  to  them  in  London,  draw  bills 
of  exchange  for  the  amount  of  these  debts,  and,  through  the 
agenc3T  of  middlemen  or  brokers,  go  into  the  market  to  sell 
these  bills  to  other  Paris  merchants  who  have  debts  to  pay 
in  London.  If  the  former  class  have  a  larger  amount  to  sell 
than  the  latter  have  occasion  to  buy,  in  other  words,  if  there 
be  a  larger  amount  of  debts  due  from  London  to  Paris,  than 
from  Paris  to  London,  then  the  competition  of  the  sellers 
of  bills  on  London  will  lower  their  price  somewhat  in  the 
market,  in  order,  as  usual,  that  the  supply  and  demand  may 
be  equalized.  In  this  case  the  par  of  exchange  is  disturbed, 
a  bill  on  London  for  £100  may  not  sell  for  over  £99,  and 
the  exchange  is  then  said  to  be  l°/0  against  London,  or, 
which  is  the  same  thing,  1  %  in  favor  of  Paris. 

The  par  of  exchange ,  therefore,  between  two  countries, 
depends  on  the  substantial  equality  of  their  mutual  debts ; 
and  if  an  exchange  “  against  ”  either  continue  long,  and 
especially  if  the  premium  on  its  bills  drawn  be  sufficient  to 
cover  the  charges  of  the  transmission  of  specie,  gold  will 
begin  to  flow  from  the  country  against  which  the  exchange  has 
turned,  and  the  equilibrium  of  payments,  and  hence  the  par 
of  exchange,  will  be  restored.  Also,  the  par  tends  to  restore 
itself,  without  the  sending  of  specie,  in  this  way :  if  bills  on 
London  are  at  a  discount  in  Paris,  for  the  same  reason  that 
they  are  so  will  bills  on  Paris  be  at  a  premium  in  London, 


CREDIT. 


437 


and  therefore  there  will  be  a  direct  encouragement  to  the 
extent  of  the  premium  for  exportations  from  England  to 
France,  because  on  every  cargo  sent  bills  can  be  drawn  and 
sold  in  London  for  a  premium  ;  but  the  more  bills  on  Paris 
thus  offered,  the  more  the  premium  disappears,  and  the  par  of 
exchange  is  restored  so  soon  as  the  debts  thus  contracted  by 
France  are  equal  to  the  debts  due  her  from  England.  At  the 
same  time,  and  so  long  as  the  discount  on  London  bills  con¬ 
tinues,  there  is  a  discouragement  to  further  exportations  from 
France  to  England,  because  the  bills  drawn  in  virtue  of  such 
cargoes  can  onl}’  be  sold  below  par.  Here  is  another  instance 
of  a  magnificently  comprehensive  law  by  which  Nature  vin¬ 
dicates  her  right  to  reign  in  the  domain  of  exchange.  It  is 
through  this  law,  stimulating  exportations  on  the  one  side, 
and  slackening  them  on  the  other,  that  most  of  the  casual 
disturbances  of  the  par  of  exchange  are  rectified  ;  but  if, 
notwithstanding  this,  the  disturbance  continues  obstinate,  it 
indicates  one  of  two  things  as  true  of  the  country  against 
which  the  exchange  has  turned :  it  has  either  made  over¬ 
purchases  of  the  other  country  beyond  the  power  of  its  ordi¬ 
nary  exports  to  cancel,  or  the  money  in  which  the  bills  drawn 
on  it  are  liable  to  be  paid  is  an  inferior  money.  In  the  first 
case,  the  only  proper  remedy  is  an  export  of  gold  to  pay  off 
the  old  scores,  and  a  more  prudent  method  of  purchasing  in 
the  future  ;  in  the  second  case,  which  is  well  exemplified  in  the 
instance  of  Amsterdam,  cited  in  a  preceding  chapter,  the 
remedy  is  to  raise  the  money  to  the  standard  of  the  best. 

This  leads  us  to  say,  that  the  term  “par  of  exchange  ”  is 
also  used  in  another  and  subordinate  sense,  namely,  as  de¬ 
noting  the  relative  value  of  the  coin  of  one  nation  in  the 
coin  of  another.  Thus,  our  present  dollar  contains  23.22 
grains  of  pure  gold;  the  English  pound  contains  113.001 
grains ;  consequently,  there  are  $4.8065  to  the  £,  and  this 
is  the  “par  of  exchange,”  so  far  as  money  is  concerned, 
between  the  United  States  and  Great  Britain.  For  the  same 
reason,  the  “par  of  exchange”  between  the  United  States 


438 


POLITICAL  ECONOMY. 


and  France  is  $1  to  5  francs  and  18  centimes  (very  nearly). 
The  franc  is  a  little  more  than  19  cents.  Now,  if  a  com* 
mercial  bill  drawn  on  London  sells  in  New  York  for  $4.8G  to 
the  pound  sterling,  minus  interest  for  the  time  it  has  to  run, 
exchange  is  said  to  be  at  par ;  if  it  sells  for  more  than  that, 
exchange  is  said  to  be  against  us ;  and  if  it  sells  for  less 
than  that,  exchange  is  said  to  be  in  our  favor. 

These  technical  terms,  “against”  and  in  “favor,”  are 
quite  misleading  unless  one  remembers  their  origin  and  their 
exact  meaning.  The  old  Mercantile  System,  in  order  to 
keep  and  heap  gold  and  silver  in  the  country,  encouraged 
exports  in  every  way  and  discouraged  imports,  that  the 
“  balance  of  trade,”  that  is,  the  difference  of  volume  between 
exports  and  imports,  might  come  back  in  gold  and  silver  ;  and 
this  foolish  and  now  exploded  notion  gave  rise  to  the  terms 
in  question  :  exchanges  were  said  to  be  “  against  ”  a  country 
when  the  bills  drawn  on  its  exports  were  above  par,  as  imply¬ 
ing  that  the  exports  were  too  great  for  a  “  balance,”  and 
were  said  to  be  “  in  favor  ”  of  a  country  when  its  bills  were 
below  par,  as  implying  more  exports  and  a  favorable  balance. 
As  a  matter  of  fact,  very  little,  if  any  thing,  can  be  inferred 
as  to  the  prosperity  of  a  country  from  the  state  of  its  tech¬ 
nical  “exchanges;”  one  cannot  tell  at  all,  that  exchanges 
“in  favor”  will  bring  in  an  influx  of  gold,  because,  while 
these  indicate  a  present  export  of  goods  larger  than  the 
import  of  goods,  the  excess  may  he  applied  otherwise  than  in 
buying  gold ,  as  for  instance,  in  paying  interest  on  debts  held 
abroad  or  in  paying  freights  to  foreigners  ;  for  example,  the 
exchanges  were  in  favor  of  the  United  States  in  1874-77, 
there  being  an  apparent  trade  balance  of  $164,000,000  in 
1877  and  a  still  larger  in  1876  and  a  large  one  in  the  two 
years  preceding,  but  the  import  of  specie  was  small  in  all 
those  years,  averaging  about  $25,000,000  a  year,  and  the 
rest  of  the  excess  of  exports  .went  to  pay  foreign  interest, 
freights  both  ways,  and  so  on.  No  one  has  ever  shown,  or 
can  show,  that  gold  is  any  better  in  general  as  a  return  for 


CREDIT. 


439 


a  balance  than  other  commodities  ;  gold-producing  countries, 
and  countries  into  which  gold  has  flowed  in  excess  so  as  to 
carry  up  prices,  find  bullion  their  most  advantageous  export 1 
and  often  also  the  imports  for  which  a  nation  pays  in  gold, 
or  in  bills  above  par,  are  bought  with  high  profit.  Exchanges 
are  apt  to  rule  “in  favor”  of  countries,  like  the  United 
States,  whose  national,  State,  or  corporation  bonds  are 
largely  held  by  foreigners,  because  both  interest  and  princi¬ 
pal  must  sooner  or  later  be  remitted  in  exports,  and  whose 
public  policy  is  restrictive  of  imports  whether  of  goods  or 
ships  through  what  is  falsely  called  “protection;”  and 
exchanges,  were  there  no  counterworking  principle,  would 
be  “against”  capitalist  and  hence  creditor  countries,  like 
Great  Britain,  whose  imports  are  apt  to  be  strongly  in  excess 
of  exports,  and  whose  public  policy  is  wise  enough  to  put 
no  obstacles  in  the  way  of  the  free  receipt  of  the  former. 

This  counterworking  principle,  already  illustrated  in  the 
case  of  New  York,  is  best  seen  in  connection  with  London, 
which  is  the  settling-place  of  the  world’s  commerce.  When 
the  Romans  dredged  the  Thames  and  made  “  the  pool  ”  just 
below  London  Bridge,  they  took  the  first  steps  towards  mak¬ 
ing  that  town  a  commercial  centre ;  a  market  for  products 
is  products  in  market,  and  the  busy  exchange  of  commodities 
there  quickened  in  every  age  the  accumulation  of  capital  and 
the  increase  of  population  ;  about  100  vessels  now  enter  the 
port  of  London  every  day,  which  receives  about  one-half  of 
the  total  customs  revenue  of  the  United  Kingdom  and  sends 
out  about  one-fourth  of  its  exports ;  the  business  of  out- 
of-way  and  semi-civilized  countries  has  somehow  centred 
there,  as  well  as  the  business  of  original  British  colonies  and 
all  other  commercial  nations  ;  accordingly,  debtors  and  credit¬ 
ors  abound  there,  bills  of  exchange  concentre  there,  and  debts 
due  everywhere  are  payable  there;  and  therefore,  because 
bills  on  London  are  good  all  over  the  world,  the  demand  for 
them  counterworks  the  natural  cheapness  of  the  bills  drawn 
on  exports  thither  as  compared  with  the  natural  dearness  of 


440  ‘ 


POLITICAL  ECONOMY. 


the  bills  drawn  there  on  exports  thence.  Another  thing  must 
be  borne  in  mind  in  comparing  the  merchandise  accounts  of 
any  country,  namely,  that  when  the  u  exchange  ”  is  sufficient 
to  cover  the  cost  and  risk  of  the  transmission  of  gold,  that 
is  likely  to  go  freely  from  the  country  “  against  ”  which  the 
exchanges  have  turned,  and  bills  will  be  drawn  upon  that,  as 
upon  common  merchandise,  and  sold  for  a  premium  ;  or,  if 
a  decidedly  higher  rate  of  discount  prevail  in  a  neighboring 
land,  gold  will  go  out  thither  from  lower-rate  lands,  because 
lenders  in  the  latter  will  wish  to  realize  the  higher  rate  of 
interest,  and  bills  will  be  drawn  on  this  gold  as  well,  but  the 
home  bankers  can  always  stop  a  drain  of  this  kind  by  raising 
their  own  rates  of  discount. 

This  casual  mention  of  bankers  leads  on  to  the  weighty 
point,  that  the  whole  business  of  foreign  exchange  is  falling 
more  and  more  into  the  hands  of  the  bankers,  because  bills 
drawn  by  and  upon  well-known  bankers  naturally  have  a 
better  credit  than  ordinary  commercial  bills  the  names  upon 
which  are  less  widely  and  favorably  known.  Accordingly, 
persons  sending  cargoes  of  cotton,  say,  or  of  any  other 
valuables,  from  New  York  to  Liverpool,  arrange  with  their 
bankers  in  New  York  to  have  the  proceeds  of  the  cargoes 
put  to  the  'bankers'  credit  in  London,  and  then  these  bankers 
draw  bills  on  the  London  bankers,  which  will  bring  a  higher 
price  in  New  York  than  a  common  commercial  bill,  because 
many  remitters  and  most  travellers  prefer  bankers’  bills, 
which,  though  they  cost  more,  pay  better  and  buy  better 
abroad.  Commercial  bills  are  still  bought  and  sold  in  every 
commercial  town,  but  bankers’  bills  are  more  and  more  tak¬ 
ing  their  place ;  and  the  quotations  usually  give  the  current 
price  of  each.  London  is  so  prominent  as  the  settling-place 
of  the  world’s  transactions  by  means  of  bills  drawn  on  and 
by  London  bankers,  partly  on  account  of  the  commercial 
prominence  of  England,  partly  from  excellent  banking  cus¬ 
toms  there,  and  mainly  because  an  immense  mass  of  cheap 
loanable  capital  exists  there,  which  even  foreigners  may 


CREDIT. 


441 


borrow  at  London  rates,  provided  only  that  they  can  get 
credit  there,  that  is,  leave  to  draw  on  a  London  banker,  to 
whom  of  course  remittances  must  be  made  as  fast  as  he 
accepts  their  bills.  Besides,  the  Bank  of  England,  as  the 
principal  bank  in  Great  Britain,  and  as  closety  connected 
with  the  government,  acts  as  a  bank  of  support  to  the 
public  and  private  credit  of  that  country.  It  does  a  regular 
business  as  a  bank  of  deposits  and  discounts,  but  it  means 
to  keep  its  rate  of  discount  above  the  rate  demanded  by 
other  bankers  in  London,  so  as  not  to  come  into  competition 
with  them  much  in  their  ordinary  business,  and  be  able  to 
act  as  a  bank  of  support  to  them  and  all  others  in  times  of 
pressure.  All  banks  have  about  so  much  credit  to  sell,  and 
no  more;  most  banks  sell  in  ordinary  times  about  all  the 
credit  they  have  ;  but  if  the  Bank  of  England  did  this,  it 
would  be  useless  in  times  of  panic.  In  fact,  it  begins  to  sell 
its  reserve  credit,  when  the  credit  of  the  bankers  below  is 
exhausted.  When  they  are  at  the  end  of  their  rope,  there 
is  generally  an  abundance  of  slack  rope  still  in  the  great 
institution  above.  Now,  as  gold  can  be  drawn  out  of  the 
Bank  of  England  by  the  cheques  of  depositors  as  well  as  by 
the  presentation  of  notes  for  redemption,  the  rate  of  dis¬ 
count  becomes  a  matter  of  prime  importance  in  the  practical 
management  of  the  Bank.  The  whole  line  of  deposits  is  a 
line  of  liabilities  to  pay  out  gold,  if  the  depositors  demand 
it;  and,  as  deposits  come  largely  through  discounts,  when¬ 
ever  there  is  a  strong  tendency  to  draw  out  gold  so  as  to 
weaken  the  reserves  of  the  bank,  the  directors  have  an 
effectual  remedy  in  raising  the  rate  of  discount.  The  higher 
the  price  the  bank  charges  for  its  credit,  the  fewer,  so  far 
forth,  will  be  its  customers,  and  the  smaller  its  line  of 
deposits,  and  the  less  likely  a  continuous  drain  of  gold  from 
its  vaults.  The  Bank  of  England  is  managed  throughout  by 
so  simple  a  matter  as  the  turning  back  and  forth  of  this 
magic  screw  of  discount. 

The  antiquity  of  banks  and  bills  of  exchange  is  ver^ 


442 


POLITICAL  ECONOMY. 


great.  There  are  Babylonian  tablets  in  the  Metropolitan 
Museum  of  Art  in  New  York,  dated  variously  from  601  to 
505  B.C.,  many  of  them  in  the  reign  of  Nebuchadnezzar, 
bearing  distinct  records  of  transactions  in  credit-banking. 
One  of  them  is  an  account  of  a  loan  of  money,  having  79 
days  to  run,  with  a  penal  clause  in  case  of  non-fulfilment. 
Another  states  the  exact  amount  of  interest  to  be  given  for 
the  use  of  the  money.  Some  are  obligations  payable  to 
a  third  party,  and  others  with  a  guaranty  to  a  third  person. 
Still  others  were  regular  bills  of  exchange,  that  is,  drafts 
drawn  in  one  place  and  payable  in  another.  These  were 
evidently  negotiable,  but  from  the  nature  of  the  case  could 
not  pass  by  indorsement,  because  nothing  new  could  be 
added  when  the  clay  tablets  were  once  baked,  and  conse¬ 
quently  the  name  of  the  payee  is  often  omitted.  The  names 
of  three  or  four  witnesses  usually  accompany  each  docu¬ 
ment.  It  is  reasonably  supposed,  that  Egibi  &  Co.,  Baby¬ 
lonian  bankers,  were  the  first  to  distinguish  themselves  as 
such  in  the  ancient  world,  as  the  Rothschilds  have  done  in 
the  modern  world ;  because,  burnt  clay  documents  in  the 
British  Museum,  and  some  of  those  in  the  New  York 
Museum,  trace  this  family  in  banking  transactions  during 
a  century  and  a  half  from  the  time  of  Sennacherib  to  the 
reign  of  Darius.1  The  West  was  quick  to  catch  the  modes 
of  the  East :  Isocrates  in  his  plea  against  the  banker  Pasion 
describes  a  formal  bill  of  exchange  bought  by  Stratocles  in 
Athens,  payable  in  Pontus,  and  guaranteed  principal  and 
interest  by  Pasion;  Cicero  writes  to  Atticus,  “  Let  me 
know,  if  the  money  my  son  needs  at  Athens  can  be  sent 
him  by  way  of  exchange  or  if  it  be  necessary  for  it  to  be 
taken  to  him, — permutarine  possit  an  ipsi  ferendum  sit;” 
and  Jews  and  Lombards  carried  the  letter  of  credit  over  the 
world. 

7.  Cheques.  These  are  indeed  in  substance  bills  of  ex¬ 
change,  but  the  two  have  such  differing  legal  incidents,  and 

1  See  for  particulars  Article  Bank  in  Lib.  Univer.  Knowledge,  vol.  ii. 


CREDIT. 


443 


run  so  different  a  course  towards  extinguishment,  that 
cheques  may  properly  be  put  under  a  separate  head. 
Cheques  are  drawn  at  sight  on  a  banker,  who  thus  becomes 
a  drawee,  a  depositor  with  that  banker  is  the  drawer,  and 
a  person  named  in  the  cheque  is  the  payee,  who  can  indorse 
his  right  over  to  another  or  to  bearer  in  blank.  When  a 
bill  is  drawn  in  this  way  by  one  banker  upon  another,  it  is 
usually  called  in  this  country  a  draft.  Formerly  in  Eng¬ 
land,  and  in  other  countries  as  well,  every  considerable 
dealer  kept  his  strong  box,  and  wrlien  he  had  occasion  to 
make  payments,  told  down  the  solid  cash  upon  his  own 
counter.  Afterwards,  the  goldsmiths  of  London  solicited 
the  honor  of  keeping  in  their  vaults  the  spare  cash  of  the 
merchants,  who  in  their  payments  among  one  another  came 
to  employ  cheques  drawn  on  the  goldsmiths,  and  at  the  shops 
of  the  latter  the  principal  payments  in  coin  were  effected. 
The  later  introduction  of  banks  brought  along  with  it  the 
custom,  now  continual!}7  widening  in  commercial  countries 
among  all  classes  of  people,  of  keeping  one’s  funds  with  a 
banker,  and  making  payments  by  orders,  or  cheques,  upon 
him.  When  the  person  making  the  payment  and  the  person 
receiving  it  keep  their  money  with  the  same  banker,  there  is 
no  need  of  any  money  passing  at  all  in  the  premises,  the 
sum  being  merely  transferred  in  the  banker’s  books  from 
the  credit  of  the  payer  to  that  of  the  receiver.  The  banker 
is  quite  willing  to  do  this  business  for  nothing,  and  even 
sometimes  to  allow  the  depositors  a  low  rate  of  interest  on 
all  balances  remaining  in  his  hands,  in  consideration  of  the 
privilege  he  enjoys  of  loaning  such  proportion  of  the  sums 
as  he  deems  safe  to  other  parties  at  a  higher  rate  of  interest. 
In  the  large  cities,  by  an  arrangement  called  “the  clearing¬ 
house,”  substantially  the  same  benefits  are  secured  as  if  all 
the  people  of  the  city  kept  their  cash  at  the  same  bank  ;  in¬ 
asmuch  as  all  the  cheques  drawn  on  each  of  the  different 
banks,  and  passing  in  the  course  of  the  business  day  into 
other  banks,  are  assorted  before  evening  at  the  clearing- 


444 


POLITICAL  ECONOMY. 


house,  and  set  off  as  far  as  possible  against  each  other, 
leaving  only  balances  to  be  adjusted  in  money. 

The  London  Bankers’  Clearing-house  was  established  in 
1775  ;  in  1864,  the  Bank  of  England  was  admitted  to  it ;  and 
since  then,  the  clearing-house  itself,  and  all  the  bankers 
and  firms  using  it,  keep  accounts  with  the  Bank  of  England, 
and  the  balances  formerly  settled  by  money,  are  now  settled 
by  simple  transfers  of  account  on  the  books  of  that  great 
bank.  This  carries  out  the  principle  of  the  clearing  further 
than  it  has  yet  been  carried  in  this  country,  although  the 
United  States  sub-treasury  has  lately  joined  the  New  York 
clearing-house,  but  the  practical  details  of  the  clearing  are 
simpler  and  better  in  New  York  than  in  London.  The 
average  clearings  in  the  London  Bankers’  Clearing-house, 
1875-80,  were  £5,218,000,000  a  year,  and  the  amounts 
cleared  frequently  rose  to  £20,000,000  a  day,  which,  if  paid 
in  gold  coin,  would  weigh  about  157  tons  and  require  about  80 
horses  to  carry  it,  and  if  in  silver  coin  would  weigh  more  than 
2,500  tons  and  require  1,275  horses  (Jevons).  There  are 
besides  many  other  clearing-houses  in  Great  Britain.  Of 
the  total  business  of  the  23  clearing-houses  in  the  United 
States  in  1880,  namely,  over  $50,000,000,000,  the  New 
York  house  did  65$,  and  the  average  daily  clearings  there 
for  the  fiscal  year  1879  were  $76,167,983. 

We  will  describe  mainly  from  observation  the  New  York 
Clearing-house,  which  was  established  in  1853,  and  premise 
that  the  principle  is  the  same,  though  the  details  may  be 
different,  in  all  other  clearing-houses.  Business  men  in  New 
York  usually  pass  in  to  their  bankers  as  a  deposit  all  the 
cheques  they  have  received  in  the  course  of  a  business  day. 
It  is  the  custom  for  each  man  to  draw  his  own  cheque 
on  his  banker  to  make  payments  with,  and  to  pass  in  the 
cheques  he  receives  to  his  banker.  There  are  fifty-nine 
clearing-banks  in  New  York  city.  Each  of  these  banks 
sorts  out  every  day  the  cheques  it  has  received  drawn  on 
each  of  the  other  banks  into  separate  parcels  ready  for  the 


CREDIT. 


445 


clearing.  Each  bank  has,  therefore,  to  deliver  fifty-eight 
parcels,  which  represent  the  property  of  that  bank,  ancl  are 
a  claim  upon  the  other  banks,  and  to  receive  fifty-eight  par¬ 
cels,  which  represent  the  property  of  other  banks,  and  are  a 
claim  upon  it.  Before  ten  o’clock  in  the  morning  fifty-nine 
messengers,  having  each  fifty-eight  parcels  to  deliver,  appear 
at  the  clearing-house,  each  reporting  at  once  to  the  manager 
for  record  the  amount  of  exchange  he  has  brought,  which  is 
entered  of  course  as  credit  to  his  bank,  and  then  all  take 
their  positions  in  order  in  front  of  the  fifty-nine  desks, 
behind  which  sit  fifty-nine  clerks,  each  representing  one 
of  the  banks.  Each  messenger  stands  opposite  the  desk  of 
his  own  bank,  with  his  parcels  already  arranged  in  the  exact 
order  of  the  bank-desks  before  him.  Each  clerk  inside  his 
desk  has  a  sheet  containing  the  names  of  all  the  banks 
arranged  in  the  same  order,  with  the  amounts  carried  out 
which  his  messenger  has  just  brought.  These  are  entered 
in  his  credit  column.  Each  messenger  carries  also  a  slip 
ready  to  be  delivered  with  each  parcel  to  each  clerk,  on 
which  is  entered  the  amount  of  exchange  he  now  brings  to 
each  bank.  The  amount  brought  to  each  bank  is  debit  to 
that  bank,  just  as  the  amount  brought  by  each  bank  is  credit 
to  that  bank.  A  signal  from  the  manager,  and  each  mes¬ 
senger  steps  forward  to  the  next  desk,  delivers  his  parcel 
and  also  the  slip  that  goes  with  it,  which  latter  the  clerk 
signs  with  his  initials  and  hands  back  to  the  messenger  as 
his  voucher  for  the  deliver}7 ;  and  then  each  messenger  ad¬ 
vances  to  the  next  desk,  —  the  whole  cue  moving  in  order, 
—  at  which  precisely  the  same  things  take  place  as  before, 
and  so  on,  until  the  circuit  of  the  room  is  made,  aud  each 
comes  opposite  again  the  desk  of  his  own  bank,  having 
passed  to  each  its  exchange  and  taken  a  receipt  for  each 
delivery.  This  process  takes  about  ten  minutes  ;  when  each 
clerk,  who  had  on  his  sheet  to  start  with  the  credit  due  his 
bank,  has  now  the  data  to  calculate  the  debit  of  his  bank. 
The  difference  between  the  total  amount  received  and  the 


446 


POLITICAL  ECONOMY. 


i 

total  amount  brought  by  his  bank  is  the  balance  due  to  or 
from  the  clearing-house  as  to  that  bank.  All  the  clerks 
report  to  the  manager  the  amounts  received,  and  as  his 
proof-sheet  holds  already  the  amounts  brought,  if  the  two 
columns  add  up  alike,  no  mistake  has  been  made,  and  the 
general  clearing  is  over.  Thirtjr-five  minutes  are  allowed 
the  clerks  to  enter,  report,  and  prove  their  work.  Fines 
are  imposed  for  errors  discovered  after  that  time.  The 
clearing-house  gives  tickets  of  debit  or  credit  to  all  the 
banks,  and  the  debit  ones  must  pay  in  lawful  money  before 
half-past  one,  and  the  credit  ones  will  get  their  due  from 
the  manager  immediately  after.  The  largest  sum  ever 
cleared  in  New  York  in  one  day  was  Nov.  17,  1868, 
$206,034,920.51,  and  the  smallest  sum  Oct.  30,  of  the 
panic  year  1857,  $8,357,394.82. 

There  has  lately  been  instituted  in  England  what  is  called 
the  cheque-bank,  which  is  designed  to  bring  the  benefits  of 
the  cheque-system  more  easily  to  all  classes  of  the  people.1 
It  is  a  stock  company  in  London,  which  has  entered  into 
relations  with  nearly  all  the  banks  and  bankers  of  the 
United  Kingdom,  and  with  many  colonial  and  foreign  banks, 
by  which  cheque-books  are  furnished  for  sale  by  the  cheque- 
bank,  through  these  associated  banks,  which  also  agree  to 
cash  the  cheques,  every  cheque  in  which  books  indicates  by 
printed  and  indelible  perforated  notices  upon  the  forms  what 
the  utmost  sum  is  against  which  that  cheque  can  be  drawn, 
and  the  aggregate  of  these  sums  is  the  price  of  the  book  less 
1  1-5  penny  for  each  cheque  in  it,  of  which  the  penny  is  for 
the  government  stamp  and  the  one-fifth  for  the  profits  of  the 
cheque-bank.  It  is  a  security  against  fraud  that  each  cheque 
bears  on  its  face  the  utmost  sum  for  which  it  can  be  drawn ; 
and  as  it  is  drawn  to  order  and  crossed ,  that  is,  only  made 
payable  to  a  banker ,  it  is  dangerous  to  meddle  with  in  a 
fraudulent  intent.  The  Crossed  Cheques  Act  (1876)  makes 

1  See  Jevons’s  Money  and  the  Mechanism  of  Exchange,  and  Maclcod’s  Econ 
Thil.,  vol.  ii.,  p.  511,  et  seq. 


CREDIT. 


447 


felony  any  obliteration  of  the  crossing  or  alteration  of  a 
cheque.  Crossing  is  of  two  kinds,  special  and  general. 
Any  particular  banker’s  name  written  between  the  two  trans¬ 
verse  lines,  in  which  alone  crossed  cheques  differ  from 
ordinary  ones,  makes  that  cheque  payable  by  him  only : 
without  the  name,  it  is  generally  crossed,  and  is  payable  by 
any  banker.  If  the  cheques  be  actually  drawn  for  less  than 
the  perforated  sums,  the  bank  will  give  additional  cheques 
for  the  balance  ;  or  the  persons  to  whom  they  are  paid  out, 
if  drawn  for  the  full  sum,  may  give  back  the  change  if  the 
debt  thus  paid  be  less  than  the  full  sum.  Though  drawn  by 
and  payable  to  bankers,  and  thus  to  be  settled  ultimately 
through  the  clearing-house,  and  not  to  be  paid  in  money 
though  they  have  been  paid  for  in  money,  any  banker  or 
other  person  will  give  money  for  them  because  their  ultimate 
payment  is  sure.  As  all  money  received  for  cheque-books 
is  left  in  the  hands  of  the  bankers  who  sell  them,  or  trans¬ 
ferred  to  other  bankers  that  they  may  meet  the  cheques  as 
presented,  an  interest  is  paid  to  the  cheque-bank  on  the  bal¬ 
ance  of  deposits  thus  held,  and  this,  together  with  the  one- 
fifth  of  a  penny  for  each  cheque,  is  the  only  source  of  profit 
to  the  cheque-bank.  These  cheques  have  a  more  generalized 
character  than  ordinary  bank-cheques,  they  are  safer  than  so 
much  money  would  be,  they  might,  in  some  circumstances, 
become  money  as  much  as  bank-bills  are,  and  there  is  no 
difficulty  in  shopping  or  in  paying  wages  by  means  of  them. 
The  associated  banks  keep  an  account  with  the  cheque-bank, 
but  are  not  obliged  to  keep  a  separate  account  with  the  pur¬ 
chasers  of  cheque-books,  which  is  a  great  relief.  The  cheque- 
bank  thus  extends  the  use  of  cheques  to  a  multitude  of  small 
transactions,  and  relieves  the  other  banks  from  what  would 
otherwise  be  a  great  deal  of  troublesome  accounting.  The 
longer  these  cheques  remain  out  before  presentation  the 
more  profitable  to  the  cheque-bank,  and  their  average  life 
has  been  heretofore  about  ten  days. 

8.  Circular  Letters  of  Credit.  These  are  issued  by  bank-' 


448 


POLITICAL  ECONOMY. 


\  \  ’ 

ers  to  their  foreign  correspondents,  ordering  them  to  pay  to 

the  person  named  in  the  letter  such  sums  of  money  as  may 
suit  his  convenience,  not  to  exceed  in  the  aggregate  the  limit 
mentioned  in  the  letter  itself.  To  travellers  in  foreign  coun¬ 
tries  such  a  letter  of  credit  is  much  more  convenient  than  to 
carry  the  money :  because,  in  the  first  place,  they  can  obtain 
money  on  it  in  all  the  principal  cities  of  the  world  in  just  such 
sums  as  they  need ;  in  the  second  place,  they  have  to  pay 
for  no  more  credit  than  they  actually  use  ;  in  the  third  place, 
the  letter  is  available  for  no  one  else,  and  so  is  not  liable  to 
be  stolen,  though  it  may  be  lost ;  and  in  the  fourth  place, 
the  money  need  not  be  deposited  with  the  banker  at  home 
any  faster  than  it  is  actually  called  for  abroad. 

9.  Cash  Credits.  The  Scotch  banks  have  long  practised 
on  a  system  that  has  proved  extremely  beneficial  to  Scotland, 
namely,  to  create  a  drawing  account  in  favor  of  a  deserving 
customer,  who  has  no  deposits  in  the  bank,  but  who  draws 
out  and  pays  in  from  time  to  time  just  as  if  he  had,  and  in¬ 
stead  of  receiving  interest  on  the  daily  balance  at  his  credit, 
he  pays  interest  on  the  daily  balance  at  his  debit.  These 
are  called  Cash  Credits.  Of  course,  only  banks  can  furnish 
them  which  have  a  superfluity  of  credit  to  sell,  and  they  are 
safe  and  useful  only  in  communities  in  which  men  are  well 
known  to  each  other.  Some  friends  of  the  parties  thus  ac¬ 
commodated  always  guarantee  the  bank  against  loss  ;  but 
the  losses  have  proved  to  be  insignificant,  the  gains  to  be 
marvellous,  and  this  form  of  credit  issued  on  the  basis  of  no 
previous  transaction  illustrates  better  than  any  other  the 
principle  that  credit  is  capital. 

These  nine  are  the  principal  forms  of  instruments  of 
credit;  and  we  must  now  observe  that  credits  are  extin¬ 
guished  in  four  different  ways  :  first,  by  a  payment  in  money, 
which  puts  a  commodity  in  place  of  the  credit,  and  annihi¬ 
lates  the  latter ;  second,  by  a  release  of  the  debtor  from  the 
obligation  to  pay  by  the  free  act  of  the  creditor,  which  of 
course  extinguishes  his  right  to  demand;  third,  by  renewal, 


CREDIT. 


449 


either  to  the  creditor,  or  to  some  other  person  with  his  con¬ 
sent,  as  becomes  the  case  with  persons  receiving  cheques  or 
bills  of  exchange  ;  and  fourth,  but  principally,  by  set-off,  as 
in  book-accounts  and  at  the  clearing-house,  since  a  mutual 
release  from  debts  becomes  a  mutual  payment  of  debts.1 
Thus  we  see  that  most  credits  extinguish  each  other,  and  bal¬ 
ances  only  remain.  Credits  are  like  a  circle,  which  returns 
perpetually  into  itself.  Some  of  the  advantages  of-  credit 
have  been  already  anticipated  in  the  discussion  of  its  princi¬ 
pal  forms ;  but  we  will  now  instance  more  specifically  a  few 
of  these  advantages. 

(a)  There  are  young  men  in  every  community,  who  have 
integrity  and  industry  and  skill,  but  little  or  no  capital ;  and 
when  such  men  are  enabled  to  borrow  money  to  start  them¬ 
selves  in  business,  or  to  enlarge  a  business  already  in  success¬ 
ful  operation,  the  general  interests  of  production,  as  well  as 
lheir  personal  interests,  are  subserved  by  such  credit,  because 
m  all  probability  capital  thus  passes  from  hands  which  are 
less  to  hands  which  are  more  able  to  use  it  productively. 
Those  who  are  best  able  to  make  capital  tell  are  generally 
those  who  are  most  desirous  to  obtain  it,  and  frequently  those 
who  can  offer  the  best  security  for  its  replacement.  Nothing 
is  to  be  said  against,  but  every  thing  in  favor  of,  such  a  loan¬ 
ing  of  capital  as  shall  bring  it,  under  safe  conditions,  from 
the  hands  of  the  idle,  the  aged,  those  indisposed,  or  those 
incompetent  to  use  it  productively,  into  hands  at  once  com¬ 
petent  and  honest.  Such  credit  is  a  benefit,  and  only  a  bene¬ 
fit,  to  all  the  parties  concerned,  and  to  society  at  large.  The 
operators  retain  something  of  profit  after  replacing  the  capi¬ 
tal  with  interest ;  the  lenders  receive  more  than  if  their  capital 
remained  idle,  or  they  employed  it  themselves  ;  and  society 
is  benefited  by  a  more  complete  development  and  rapid  cir¬ 
culation  of  services.  Despite  all  the  instances  of  broken 
faith,  it  is  still  an  honor  to  human  nature  that  men  do  sc 
gain  by  good  character  the  confidence  of  their  fellows  that 

1  Sec*  Mucleod’s  Economics,  pp.  517,  518. 


450 


POLITICAL  ECONOMY. 


they  are,  and  ought  to  be,  trusted  with  capital  ou  their  sim¬ 
ple  word  or  note ;  and  it  is  the  glory  of  free  political  insti¬ 
tutions,  that  under  their  influence,  more  than  elsewhere, 
young  men  with  no  other  dower  than  integrity  and  purpose 
do  rise,  by  the  help  of  so  slight  a  stepping-stone  as  this,  in 
crowds,  to  the  high  places  of  opulence.  In  the  point  of 
view,  that  thus  all  the  available  capital  of  the  community  is 
brought  out  into  productive  activity  too  much  can  scarcely 
be  said  in  favor  of  savings-banks,  which  take  the  surplus 
earnings  of  the  poor,  and  not  only  keep  them  safely,  but 
pay  a  fair  interest  on  each  deposit,  and  loan  the  aggregate 
at  a  higher  rate  on  choice  securities,  thus  stimulating  fru¬ 
gality  in  a  wide  circle  of  depositors,  and  at  the  same  time 
aiding  production  by  opportune  loans  to  the  best  class  of 
borrowers.  There  were  $443,000,000  invested  in  savings- 
banks  in  the  State  of  New  York,  and  $230,000,000  in  the 
small  State  of  Massachusetts,  in  the  year  1881.  In  this 
category  of  the  advantages  of  credit  come  also  the  ordinary 
bank  discounts,  made  for  short  periods  only,  holding  the 
debtor  to  the  strictest  rules  of  payment,  only  professing  and 
only  enabled  to  help  customers  over  the  transient  hard  places 
in  their  business,  and  not  to  furnish  the  funds  on  which  the 
business  is  mainly  conducted.  Sums  drawn  from  the  banks 
on  credit  should  only  form  a  part  of  the  circulating  capital 
of  a  business,  and  never  be  put  into  the  form  of  fixed 
capital.  The  passing  necessities  of  a  business  having  an  in¬ 
dependent  basis  of  its  own  can  be  safely  and  conveniently 
met  by  bank  discounts.  So  far  as  the  capital  stock  of  a 
bank  is  made  up  of  small  subscriptions,  it  has  the  advantage 
just  spoken  of,  of  calling  otherwise  idle  sums  into  activity ; 
and  so  far  as  no  undue  privileges  are  accorded  to  it  by  la^ , 
there  is  no  branch  of  industry  more  legitimate  and  beneficial 
than  banking.  It  is  no  essential  part  of  the  functions  of  a 
bank,  that  it  manufacture  and  issue  money ;  the  money  it 
loans  should  be  the  national  money :  and  if  that,  unfortu¬ 
nately,  be  credit  money,  the  element,  uf  credit  in  the  money 


CREDIT. 


451 


should  be  sharply  discriminated  in  the  public  mind  from  that 
element  of  credit  by  which  the  bank  loans  it  to  its  customers. 

(6)  There  is  another  class  of  advantages  in  credit,  which 
do  not  depend  so  much  on  the  transfer  of  capital  from  less 
to  more  productive  hands,  as  on  the  facilities  which  credit 
affords  in  economizing  the  general  operations  of  exchange. 
Here  the  advantages  are  derived  from  the  convenience  of 
settling  accounts  arising  out  of  exchanges,  rather  than  from 
the  character  of  the  exchanges  themselves.  Look,  for  ex¬ 
ample,  at  bills  of  exchange.  They  serve  to  settle  up  die 
accounts  arising  from  the  commerce  of  two  continents,  with 
but  little  transmission  of  money  from  either,  and  with  but 
little  loss  of  time.  Bills  drawn  in  New  York  on  London 
are  usually  payable  at  sixty  days’  sight ;  and  the  merchant 
despatching  a  ship  is  able  to  realize  at  once  the  value  of  her 
cargo,  minus  interest  for  the  time  his  bill  has  to  run  ;  he  is 
indeed  still  liable  in  part  to  see  that  his  bill  is  ultimately  paid 
by  his  drawee ;  but  the  commercial  integrity  of  the  leading 
houses  in  all  countries  is  with  justice  so  firmly  believed  in 
and  acted  on,  that  on  the  whole  but  little  anxiety  springs 
from  this  source.  It  is  one  of  the  noble  things  in  inter¬ 
national  commerce  that  men  trust  each  other  across  the 
oceans,  and  lay  millions  of  value  on  the  faith  of  a  single  firm. 
Inland  bills  of  exchange  equally  facilitate  settlements  within 
the  country  itself ;  and  cheques  contribute  to  the  same  end 
even  more  simply,  passing  readily  in  payments  wherever  the 
parties  are  known,  and,  though  credit,  doing  the  work  of 
money  more  conveniently,  and  within  certain  limits  as  safely 
as  money  itself  could  do  it.  The  face  of  a  cheque  drawn  to 
the  amount  of  his  deposit  in  favor  of  another  depositor  is 
transferred  in  the  banker’s  books  from  the  credit  of  the  draw¬ 
er  to  that  of  the  payee.  The  banker  is  released  from  one 
debt  by  creating  another  of  equal  amount.  The  drawer  is 
released  from  a  debt  by  causing  another  debt  to  be  trans¬ 
ferred  to  the  payee.  The  payee  is  paid  by  the  drawer  by  the 
receipt  of  another  debt. 


452 


POLITICAL  ECONOMY. 


(c)  It  is  not  strange  that  some  thinkers  and  writers,  seeing 
these  unquestionable  benefits  of  credit  even  within  the  peculiar 
sphere  of  money  itself,  have  come,  like  Herbert  Spencer  and 
many  others,  to  think  and  teach  that  credit  might  answer  all 
the  purposes  of  money.  It  is  certain  that  it  answers  some  of 
the  purposes  of  money.  Suppose  A  has  bought  of  B  $100 
worth  of  goods,  and  B  has  bought  of  A  $125  worth  of  another 
kind  of  goods.  Three  ways  are  open  to  close  up  these  trans¬ 
actions.  A  may  pay  B  and  B  may  pay  A  in  money.  This 
would  take  $225.  A  may  pay  B  in  mone}”,  and  B  may  send 
it  back  with  $25  more.  This  would  take  $125.  Or  A  and 
B  may  mutually  balance  books,  and  B  pay  the  difference  in 
account.  This  would  take  $25.  It  is  clear,  that,  as  one  or 
other  of  these  methods  prevails  in  practice,  the  quantity  of 
money  required  to  do  the  business  of  a  country  is  very  differ¬ 
ent.  So  in  international  trade.  Foreign  bills  of  exchange 
lessen  enormously  the  quantity  of  money  that  would  other¬ 
wise  have  to  be  transported.  Credit  does  take  the  place  of 
money  in  part.  Can  it  take  the  place  of  money  entirely? 
Let  us  see.  We  have  defined  Credit  as  a  right  to  demand 
something  of  somebody ;  the  denominations  of  money  are  cer¬ 
tainly  needful  in  order  to  measure  this  right ;  and  how  can 
the  denominations  of  money  be  maintained  at  all  separately 
from  the  use  of  money  itself  as  a  medium  ?  Moreover,  great 
as  is  the  undoubted  power  of  credit,  it  waits  for  something 
beyond  itself ;  it  waits  for  realization ;  and  how  can  realiza¬ 
tion  come  without  the  use  of  money,  at  least  to  settle  bal¬ 
ances?  Further,  there  always  have  been  hitherto  in  all  com¬ 
mercial  countries  longer  or  shorter  periods  during  which  there 
was  a  general  reluctance  to  accept  the  ordinary  instruments 
of  credit  in  exchange.  Money,  and  much  of  it,  was  then 
found  to  be  indispensable.  The  very  advantages  of  credit 
itself,  which  have  now  been  explained,  are  dependent  on  this, 
that  there  be  underneath  it,  to  support  and  limit  it,  a  solid 
basis  of  value-money,  in  whose  denominations  value  can  be 
reckoned,  in  whose  coins  the  balances  of  credit  can  be  struck, 


CREDIT. 


453 


- 


and  whose  presence  secured  everywhere  by  natural  laws  alone 
can  enable  fulfilment  to  join  hand  in  hand  with  promise.  If 
ever  credit  should  usurp  the  whole  domain  of  money,  a  toler¬ 
able  standard  of  value  would  be  no  longer  possible,  credit 
itself  would  lose  its  foothold,  and  the  vast  balloon  of  promise, 
sailing  for  a  while  through  the  blue,  the  joy  of  projectors  and 
the  wonder  of  credulous  spectators,  would  descend  to  the 
earth  on  a  sudden  collapsed  and  ruined. 

(d)  Besides  the  two  essential  functions  of  banks,  receiving 
deposits  and  discounting  bills,  they  perform  a  variety  of 
other  legitimate  operations  in  credit.  They  buy  and  sell  debts 
of  all  sorts.  They  sell  their  own  drafts  on  distant  places. 
Our  own  new  national  banks  have  done  an  immense  business 
in  the  national  bonds.  They  have  been  instrumental  in  dif¬ 
fusing  these  bonds  among  the  people.  They  collect  for  their 
customers  the  coupons  at  maturity.  They  are  the  factors  of 
the  government  in  exchanging,  for  those  who  desire  it,  one 
species  of  bond  for  another.  For  the  most  part,  all  these 
dealings  of  bankers  in  debts,  —  and  their  aggregate  amount 
is  enormous,  —  must  be  enumerated  among  the  advantages 
of  credit.  But  there  are  also  some  natural  disadvantages  in 
Credit. 

(a)  When  credit  is  much  given  by  dealers  to  ordinary 
buyers,  the  reverse  results  take  place  from  those  already 
characterized,  and  capital  passes  out  from  the  hands  of  pro¬ 
ductive  operators  and  becomes  temporarily  unavailable  as 
capital.  When  an  industrious  artisan  or  merchant  has  trusted 
out  $1,000  to  dilatory  customers  for  six  months  or  a  year,  it 
is  so  much  withdrawn  for  so  long  from  his  active  capital,  and 
to  make  up  the  consequent  loss  of  profit  there  must  be  an 
addition  to  the  prices  of  his  wares,  and  besides  some  bad  debts 
belong  to  such  a  system,  and  there  must  be  an  additional 
price  to  compensate  this,  and  thus  the  customers  who  pay 
promptly  bear  a  part  of  the  proper  burden  of  the  delinquents, 
who  at  least  do  not  wholly  escape,  inasmuch  as  they  ulti¬ 
mately  (if  they  pay  at  all)  pay  a  price  enhanced  by  their  own 


454 


POLITICAL  ECONOMY. 


delay.  If  the  current  profit  of  capital  be  10%,  and  the  mer¬ 
chant  sells  and  gets  returns  five  times  a  year,  something  less 
than  2%  profit  may  be  charged  to  each  article,  but  if  he  only 
gets  returns  at  the  end  of  the  year,  10%  must  be  put  upon 
every  thing.  Hence  the  excellent  maxim,  “  Quick  sales  and 
small  profits.” 

(b)  There  is  a  greater  inherent  uncertainty  in  values  con¬ 
nected  with  credits  than  in  those  connected  with  commodities, 
or  than  in  those  connected  with  personal  services.  We  have 
already  seen  that  value  has  its  sphere  of  operations  in  the 
past,  in  the  present,  and  in  the  future.  There  is  uncertainty 
connected  with  what  has  been  done  in  reference  to  value,  as 
the  market  may  prove  to  have  been  miscalculated,  and  the 
commodities  to  have  become  unsuitable  ;  there  is  uncertainty 
connected  with  what  is  now  being  done  in  reference  to  value, 
as  the  service  bargained  and  being  paid  for  may  be  less  skil¬ 
ful  than  is  supposed ;  but  from  the  nature  of  the  case  there 
is  greater  uncertainty  connected  with  what  is  to  be  done  in 
reference  to  value,  because  in  the  first  two  cases  some  of  the 
conditions  are  already  fixed,  while  in  the  last  all  of  them  are 
at  least  open  to  hazard.  There  is  sufficient  certainty  in  all 
three  to  justify,  and  probably  to  reward  operations  in  refer¬ 
ence  to  value,  but  credits  are  naturally  more  sensitive  in  the 
law  of  their  value  than  either  commodities  or  services. 

(c)  Largely  in  consequence  of  what  has  just  been  ex¬ 
pressed,  credit-exchanges  are  more  likely  than  others  to  be 
unduly  multiplied  and  to  fail  of  ultimate  realization  in  full. 
No  more  bales  of  cotton  can  be  actually  bought  than  are  act¬ 
ually  produced,  and  no  more  men  can  be  hired  than  are  willing 
to  work ;  but  there  may  easily  be,  and  often  are,  more  trans¬ 
actions  on  the  strength  of  a  prospective  cotton  crop  than  the 
crop  itself  can  possibly  realize ;  and  hence  credits,  whose 
sphere  is  the  future,  though  legitimate  and  potent,  lie  in  a 
field  that  adjoins  the  field  of  gambling.  Gambling  occupies 
the  field  of  chance.  Credits  occupy  the  field  of  probabili¬ 
ties.  Is  speculation  proper?  That  depends  on  the  meaning 


CREDIT. 


455 


of  the  word  “speculation.”  If  “to  speculate”  means  to 
buy  any  thing  with  an  expectation  based  on  rational  proba¬ 
bilities  of  being  able  to  sell  it  again  under  different  conditions 
at  a  higher  price,  speculation  is  proper  and  beneficial  to  the 
public  —  ralues  of  things  thus  bought  and  sold  neither  fall 
so  low  nor  rise  so  high  as  they  otherwise  would  do,  which  is 
a  public  gain.  But  if  “to  speculate”  means  to  buy  and 
sell  on  chances  mere]}*,  it  is  gambling,  and  what  one  gambler 
makes  another  loses.  Under  a  sound  money,  healthful  public 
opinion,  and  good  law,  gambling  never  can  become  formida¬ 
ble  ;  and  it  is  very  plain,  that  the  limits  and  conditions  of 
legitimate  credit  are  the  limits  and  conditions  of  rational 
probability. 

(d)  A  principal  disadvantage  of  credit  is  seen  in  its  action 
on  prices  through  increased  demand,  and  in  its  consequent 
tendency  to  produce  commercial  crises.  A  man’s  whole 
purchasing-power  is  made  up  of  three  things :  first,  the 
property  in  his  possession  ;  secondly,  the  value  that  is  owed 
to  him  ;  thirdly,  his  credit.  lie  can  buy  services  of  the 
three  kinds  with  these  three  things  ;  and  his  power  to  buy 
is  exactly  measured  by  the  sum  of  these  three  things.  But 
while  the  first  two  are  limited  and  ascertainable,  the  third, 
credit,  is  in  a  certain  sense  unlimited.  Being  based  upon 
confidence,  which  is  itself  a  variable  quantity,  a  man’s 
credit  at  one  time  may  be  vastly  greater  than  at  another, 
compared  with  his  other  property  ;  and  if  he  have  the  repu¬ 
tation  of  doing  a  safe  and  regular  business,  and  is  favored 
by  circumstances,  he  will  find  himself  able  sometimes  to 
buy  on  credit  to  an  extent  out  of  all  proper  proportion  to 
his  other  capital.  When,  therefore,  credit  is  offered  and 
received  for  commodities,  it  has  the  same  influence  upon 
prices  as  when  money  is  offered  and  received  for  them.  It 
follows  that  there  is  likely  to  be  a  rise  of  prices  whenever 
there  is  an  extension  of  credit  for  the  purpose  of  purchasing  ; 
indeed,  when  money  only  is  used  to  buy  with,  there  cannot 
be  a  gene  red  rise  of  prices,  because  while  more  money  may  be 


456 


POLITICAL  ECONOMY. 


spent  on  some  things,  and  they  rise  in  price,  there  would 
be  less  money  for  other  things,  and  they  would  rather  fall  in 
price ;  but  when  credit  is  used  freely  in  addition  to  money, 
and  increased  purchases  go  on  in  all  departments  at  once, 
there  is  a  rise  of  prices  as  to  all  commodities  and  a  universal 
spirit  of  speculation.  At  such  times,  and  while  prices  are  - 
still  rising,  men  seem  to  be  making  great  gains  ;  everybody 
wishes  to  extend  his  operations  by  means  of  all  his  money 
and  all  his  credit ;  and  forms  of  indebtedness  are  multiplied 
on  every  hand.  By  and  by  it  begins  to  be  perceived  in  cer¬ 
tain  quarters  that  the  thing  has  been  overdone  ;  speculative 
purchases  cease  ;  banks  become  particular  what  paper  they 
discount ;  men  find  it  difficult  to  sell  their  debts  in  order  to 
provide  for  their  own  obligations  ;  they  fall  back  on  the  sale 
of  their  commodities,  but  when  holders  are  anxious  to  sell, 
prices  always  fall;  a  panic  now  sets  in,  more  irrational,  if 
possible,  than  the  previous  over-confidence  ;  their  inflated 
credits  and  commodities  collapse  in  the  hands  of  their  hold¬ 
ers  ;  sales  at  great  sacrifices  are  inadequate  to  meet  the  mass 
of  maturing  debts  contracted  when  confidence  was  high  ;  men 
fail,  and  must  fail;  the  banks  cannot  help  them,  or  think 
they  cannot ;  and  so  wide-spread  commercial  disaster  comes 
in. 

Such  crises  swept  over  this  country  in  1837,  1857,  and 
1873,  and  will  doubtless  recur  in  the  time  to  come.  They 
always  arise  from  disordered  credits,  and  though  not  neces¬ 
sarily  connected  with  credit-money,  are  more  likely  to  come 
in  connection  with  that.  The  more  strong  and  conservative 
the  banks  maintain  their  ordinary  condition,  the  more  power¬ 
fully  can  they  operate  to  prevent  or  abate  a  panic.  Thev 
ought  alwa}Ts  to  be  on  the  shore  and  never  in  the  stream. 
They  ought  to  be  able  to  offer  credit  on  approved  securities 
on  all  occasions  whatever ;  for  it  is  not  money  so  much  that 
is  needed  to  allay  a  panic,  nor  even  credit  actually  given,  as 
it  is  a  knowledge  that  abundant  credit  can  and  will  be  given. 
As  a  panic  becomes  imminent,  banks  ought  to  be  able  to 


CREDIT. 


457 


extend  their  discounts  freely  ;  and  the  permission  to  do  this, 
contrary  to  the  Bank  Act  of  1844,  given  by  the  government 
to  the  Bank  of  England,  has  on  three  several  occasions  acted 
like  a  charm  to  still  the  ragings  of  a  commercial  storm.  Of 
course  banks  must  raise  their  rates  of  discount  under  these 
circumstances.  On  the  occasions  referred  to,  the  Bank  of 
England  was  forbidden  to  discount  at  less  than  10%.  As 
the  inclined  plane  of  rising  prices  is  slowly  ascended  before 
a  crisis,  so  the  fall  of  general  prices  seems  to  be  rather  grad¬ 
ual  also  till  the  lowest  point  of  them  is  reached,  from  which 
another  ascent  is  commenced.  The  following  table,  taken 
from  the  New  York  Public  of  the  first  week  of  November, 
1881,  is  instructive  on  both  these  points.  Taking  the  prices 
in  1860  of  43  articles  of  prime  necessity,  which  constituted 
then  and  afterwards  about  three-fourths  of  the  commerce  of 
the  country,  as  the  normal  standard  or  100,  the  table  gives 
the  comparative  gold  prices  of  the  same  for  four  years  pre¬ 
vious  to  1873  and  for  seven  years  subsequent,  as  follows :  — 


1869  .  .  . 

...  116 

1875  .  . 

....  107 

1870  .  .  . 

...  118 

1876  .  . 

....  100 

1871  .  .  . 

...  120 

1878  .  . 

....  81 

1872  .  .  . 

...  122 

1879  .  . 

....  98 

1873  .  .  . 

...  113 

1880  .  . 

....  103 

1874  .  .  . 

...  115 

18S1  .  . 

....  Ill 

(e)  The  last 

disadvantage 

of  Credit  to 

be  noted  is 

facility  it  offers  to  contract  national  debts.  A  nation  is  a 
moral  person,  and  as  such  it  may  become  debtor  to  its  own 
people  and  to  foreigners,  and  the  debt  be  made  a  sort  of 
mortgage  on  the  national  property  and  income.  It  is  not 
denied  that  incidental  advantages  may  spring  up  in  connec¬ 
tion  with  such  a  debt :  the  bonds,  which  are  its  evidences, 
open  up  to  the  people  a  convenient  form  of  investment  for 
presently  inactive  capital,  and  for  trust  funds  of  all  kinds ; 
there  can  be  no  doubt,  that  certain  classes  of  persons  hold¬ 
ing  these  national  obligations  are  won  thereby  to  a  stronger 


458 


POLITICAL  ECONOMY. 


>  k 

loyalty  and  become  better  friends  to  stability  in  government, 

though  this  consideration  applies  mainly  to  new  governments 
and  those  temporarily  endangered ;  both  England  and  the 
United  States  now  make  a  portion  of  their  public  debt  the 
basis  of  a  national  system  of  banking,  but  it  is  very  ques¬ 
tionable  whether  this  can  be  justly  put  among  the  incidental 
benefits  of  the  debts  ;  and  again  u  a  moderate  debt  adds  to 
the  credit  of  a  nation,  and  its  ability  to  raise  money  in  an 
emergency,  for  bankers  and  capitalists  are  more  ready  to 
take  such  securities  as  the}?  are  in  the  habit  of  dealing  in  ” 
(Sidney  Homer).  On  the  other  hand,  the  burdens  of  a 
national  debt  are  very  apparent :  the  annual  interest  charge  to 
the  Union  at  the  close  of  the  late  civil  war  was  $150,000,000, 
which  gradually  declined  by  the  lowering  of  interest  and  the 
paying  off  of  principal  to  $01,368,912  for  the  year  ending 
June  30,  1881  ;  between  March,  1869,  and  August,  1873, 
the  United  States  paid  $378,015,065  on  the  principal  of  its 
public  debt ;  the  collection  of  the  internal  revenue  alone 
of  the  national  government  cost  for  the  fiscal  year  1867 
$7,712,089  ;  and  in  each  of  the  twro  years  1870  and  1881,  a 
little  over  $101,500,000  was  paid  out  to  reduce  the  principal 
of  the  debt.  These  vast  sums  came  out  of  the  industry  and 
income  of  individuals  ;  and  taxation  to  any  such  degree  as 
this  is  a  great  disturbance  to  industry,  and  gives  rise  to 
an  army  of  officials  who  eat  out  a  considerable  percentage 
of  all  they  collect.  Moreover,  the  various  expedients  of 
taxation,  which  are  always  practically  unequal  in  their  oper¬ 
ation,  give  rise  to  irritation  and  political  agitation,  and  even 
sometimes  to  threats  of  repudiation ,  especially  when  the  occa¬ 
sion  has  gone  by  under  which  the  debt  was  contracted,  and 
a  generation  is  called  upon  to  liquidate  a  debt  which  it  had 
no  agency  in  creating. 

Here  the  vexed  question  arises,  how  far  has  one  genera¬ 
tion  the  right  to  throw  upon  succeeding  ones  the  burdens  of 
a  national  debt?  The  true  answer  is,  that  it  has  a  very  lim¬ 
ited  right  indeed.  The  opposite  doctrine  tacitly  implies  that 


CREDIT. 


459 


succeeding  generations  will  have  no  occasion  for  extraordi¬ 
nary  expenses  of  their  own,  and  therefore  may  rightfully  be 
made  to  contribute  to  the  extraordinary  expenses  of  this 
generation.  But  it  is  pure  assumption  to  take -for  granted 
that  the  next  generations  will  not  have,  of  some  kind  or 
other,  as  much  occasion  for  an  extraordinary  effort  in  the 
way  of  defence  or  of  improvement  as  the  present  generation 
has  had.  It  is  an  illusion  to  estimate  wrhat  has  now  to  be 
done  as  of  much  more  importance  than  what  will  have  to 
be  done.  Therefore  to  throw  our  burden  forward  on  another 
generation  that  may  have  its  own  peculiar  effort  to  make, 
just  as  great  and  just  as  imperatively  called  for,  is  an  unwar¬ 
rantable  procedure.  The  view  that  has  prevailed  in  practice, 
that  a  great  war-debt,  for  example,  might  be  cast  with  facility 
upon  posterit}7,  has  given  rise  to  needless  and  expensive  wars  ; 
and  they  have  been  called  upon  to  pay  who  perceive  the  utter 
inutility  of  the  expenditure.  Thus  bitterness  has  been  added 
to  burden.  Besides,  the  men  to  fight  the  battles,  and  the 
capital  by  means  of  which  to  feed,  clothe,  and  furnish  them 
the  munitions  of  war,  must  come  from  that  generation ;  and 
there  is  always  great  injustice  in  the  manipulations  of  a 
debt  ostensibly  incurred  to  obtain  this  capital,  and  the  debt 
itself  is  usually  in  large  part  rather  a  memorial  of  the  war 
than  of  the  means  by  which  its  expenses  were  actually  de¬ 
frayed.  The  present  generation  of  American  citizens  was 
called  on  to  do  an  important  thing  in  suppressing  a  civil  war, 
and  in  eradicating  a  social  institution  that  was  thoroughly 
bad ;  the  expense  of  doing  this  was  many  fold  enhanced  by 
timid  counsels  in  the  field,  by  class  legislation  in  Congress, 
and  by  wretched  financiering  in  the  Cabinet ;  but  the  debt, 
vast  as  it  is,  and  unnecessarily  incurred  as  a  portion  of  it 
was,  can  all  be  paid  off,  must  all  be  paid  off,  by  the  genera¬ 
tion  that  incurred  it.  That  it  may  thus  be  paid  will  require 
an  economical  administration  of  government ;  an  avoidance 
of  intervention  in  the  affairs  of  our  neighbors,  and  of  entan¬ 
gling  alliances  with  foreigners  ;  a  free  commercial  system, 


460 


POLITICAL  ECONOMY. 


under  which  duties  shall  be  adjusted  only  for  the  most  pro¬ 
ductive  revenue  ;  and  a  constant  and  onerous  home  taxation. 

We  may  perhaps  throw  into  the  following  propositions 
the  substance  of  the  discussions  in  this  chapter :  — 

1.  Credits  are  rights  bought  and  sold  like  commodities ,  and 
therefore  find  an  important  place  in  economics. 

2.  They  are  specially  related  to  future  time ,  and  thus  share 
the  uncertainties  of  the  future. 

3.  Nevertheless  they  are  legitimate  and  potent ,  and  round 
out  the  wondrous  world  of  values. 

4.  The  economic  and  moral  worlds  touch  each  other  in 
credits ,  which  have  their  foundation  in  human  character. 

5.  “  It  is  the  character ,  experience ,  and  connections  of  the 
man  wanting  credit ,  his  knowledge  of  his  business ,  and  oppor¬ 
tunities  of  making  it  available  in  the  struggle  of  life ,  that 
weigh  with  the  shrewd  capitalist  far  more  than  the  command 
of  a  few  thousands  more  or  less  of  money  in  hand  ”  ( Cobden ). 

6.  Credits  gather  up  the  driblets ,  economize  exchanges ,  spare 
the  use  of  money,  and  put  even  the  Future  under  contribution. 

7.  Good  bankers  are  great  benefactors. 

8.  Credits  are  liable  to  abuse ,  as  always  involving  some 
losses ,  as  often  bringing  on  crises ,  and  as  sometimes  piling  up 
national  debts. 


FOREIGN  TRADE. 


461 


CHAPTER  XII. 

FOREIGN  TRADE. 

The  Constitution  of  the  United  States  expressly  forbids 
that  any  taxes  should  be  levied  upon  articles  exported  from 
them  to  foreign  countries.  Another  clause  of  that  instru¬ 
ment  forbids  any  taxation  of  articles  carried  from  one  State 
into  another.  Knowing  that  exchanges  are  good,  that  they 
are  designed  by  God  for  the  welfare  of  mankind,  that  Plenty 
is  better  the  world  over  than  Scarcity,  the  wisdom  of  our 
fathers  shut  off  all  chance  of  meddling  by  posterity  with  one- 
half  of  the  elements  of  foreign  trade,  —  exports,  —  and  se¬ 
cured  the  entire  freedom  of  interstate  commerce  forever.  In 
granting  to  Congress  the  power  to  tax  the  people  at  all,  the 
Constitution  restricts  it  to  the  sole  purpose  of  getting  money. 
The  exact  sense  of  the  taxing  clause  is  as  follow's  :  Congress 
shall  have  power  to  lay  and  collect  taxes,  duties,  imposts  and 
excises,  in  order  to  get  money  with  which  to  pay  the  debts 
and  provide  for  the  common  defence  and  general  welfare  of 
the  United  States ;  and  therefore,  no  power  is  given  to  lay 
taxes  for  any  other  purpose  than  to  get  money  for  the  use  of 
the  whole  United  States.  Ostensible  taxes  on  foreign  goods, 
accordingly,  designed  to  prevent  the  United  States  from  get¬ 
ting  money  by  reason  of  the  highness  of  their  rates,  and  thus 
to  raise  artificially  the  prices  of  certain  domestic  products, 
are  clearly  unconstitutional  as  well  as  radically  unjust.  On 
this  point  we  are  able  to  quote  the  pretty  explicit  opinion  of 
Daniel  Webster,  who  has  been  long  and  justly  styled  the 
“great  expounder”  of  the  Constitution.  In  the  course  of 
his  memorable  speech  against  Hayne  in  1830,  he  said  with 


462 


POLITICAL  ECONOMY. 


i 

reference  to  opinions  expressed  by  him  in  Faneuil  Hall  ten 
years  before,  —  “  I  said  then,  and  say  now ,  that,  as  an  origi¬ 
nal  question,  the  authority  of  Congress  to  exercise  the  revenue 
power  with  direct  reference  to  the  protection  of  manufactures, 
is  a  questionable  authority,  far  more  questionable,  in  my 
judgment,  than  the  power  of  internal  improvements .”  A 
recent  decision  (October,  1874)  of  the  Supreme  Court  settles 
also  the  further  doctrine  that  the  power  to  tax  even  to  get 
money  is  limited  by  the  end  for  which  the  money  is  to  be 
expended,  that  is,  public  money  must  be  expended  for  a  pub¬ 
lic  purpose.  “  To  lay  with  one  hand  the  power  of  the  govern¬ 
ment  on  the  property  of  the  citizen,  and  with  the  other  bestow 
it  upon  favored  individuals  to  aid  private  enterprises  and 
build  up  private  fortunes,  is  none  the  less  robbery  because  it 
is  done  under  the  forms  of  law  and  is  called  taxation.  This  is 
not  legislation.  It  is  a  decree  under  legislative  forms.  Nor 
is  it  taxation.  Beyond  a  cavil  there  can  be  no  laivful  tax  that 
is  not  laid  for  a  public  purpose”  (Wallace,  20,  655).  If  the 
fathers  in  their  well-known  zeal  for  liberty  of  commerce  had 
taken  one  step  more  in  the  Constitution,  and  forbidden  all 
taxes  upon  imports,  for  which  there  exists  no  reason  not 
equally  applicable  to  exports,  they  would  have  conferred  a 
great  and  lasting  boon  upon  their  country.  It  would  indeed 
have  been  but  a  negative  boon,  an  open  opportunity  to  ex¬ 
change  products  with  all  nations  as  each  generation  should 
find  them  profitable  ;  and  it  would  have  required  what  might 
at  first  have  been  deemed  an  inconvenience,  direct  taxes  on 
the  property  or  income  of  the  people  of  the  States  for  national 
uses  ;  but  the  boon  in  both  these  respects  would  have  helped 
the  nation  to  grow  rich  from  the  start,  and  would  have  saved 
it  later  from  some  of  the  worst  chapters  of  its  history.  Even 
then  it  would  still  have  been  needful  in  each  generation  to 
unfold,  as  we  have  already  tried  to  do  in  these  pages,  the 
vast  benefits  to  men  of  free  exchanges,  but  it  would  not  have 
been  needful  to  apply  the  principles  specially  to  foreign 
trade. 


FOREIGN  TRADE. 


4G3 


It  is  only  because  their  application  to  the  wider  field  of 
international  exchanges  has  been  contested  by  some  persons, 
who  have  conceded  their  validity  within  the  boundaries  of  the 
individual  nations,  that  it  is  now  needful  to  bestow  upon  the 
subject  a  separate  treatment,  to  demonstrate  that  the  laws  of 
exchange  are  universal  and  not  partial,  that  the  accident  of  a 
different  nationality  has  nothing  to  do  with  the  motives  or  the 
gains  of  the  two  parties  to  an  exchange,  and  also  to  attempt  to 
answer  with  thoroughness  and  candor  the  objections  that  have 
been  raised  against  the  freedom  of  international  exchanges. 

Here,  as  everywhere  else  within  the  science  of  political 
economy,  the  safe  appeal  lies  to  the  common  sense  of  men. 
The  scientific  mind  sees  the  absurdity  at  once  of  attempting 
to  apply  one  set  of  principles  to  domestic  exchanges  and  an 
opposite  set  to  international  exchanges,  since  a  science  is  of 
necessity  general,  and  its  principles,  if  sound,  must  apply  to 
every  possible  case  of  the  whole  class  ;  and  the  common  mind 
as  well  can  be  made  to  see  with  entire  clearness  that  artificial 
obstacles  put  in  the  way  of  the  freedom  of  exchanges  invari¬ 
ably  involve  both  injustice  and  loss.  It  is  only  necessary  to 
take  the  simplest  cases  first,  display  familiarly  the  principles 
applicable  to  them,  and  then  with  the  clew  well  in  hand,  to 
pass  on  through  the  more  intricate  portions  of  the  subject. 
A  wTiter,  whose  simple  purpose  is  to  reach  the  truth,  who  has 
no  personal  interest  in  either  defending  or  overthrowing  a 
dogma,  will  not  confuse  the  understanding  of  his  readers, 
and  his  own,  by  leaping  at  once  into  the  thick  complications 
of  this  large  subject.  Happily,  there  is  no  need  of  any  such 
procedure.  Man  is  man,  motive  is  motive,  and  exchange  is 
exchange ;  and  the  apparent  chaos  of  commerce  can  be 
resolved  through  these  alone  into  harmony  and  order. 

In  our  fourth  chapter  it  was  put  beyond  the  reach  of  con¬ 
troversy  or  cavil,  that  the  only  reason  why  men  ever  exchange 
services  at  all,  is  on  the  ground  of  a  relative  superiority  at 
different  points.  This  relative  superiority  at  different  points 
was  shown  to  depend  in  individuals  partly  on  natural  gifts, 


464 


POLITICAL  ECONOMY. 


partly  on  concentration  of  mind,  or  muscle,  or  both,  on  a 
single  class  of  efforts,  and  partly  on  the  use  and  familiarity 
in  the  use  of  the  gratuitous  helps  of  Nature  aiding  that  class 
of  efforts.  The  tailor  makes  the  blacksmith’s  coat,  and  the 
blacksmith  shoes  the  tailor’s  horse,  for  no  other  reason  in  the 
world,  except  that  each  has  a  relative  advantage  of  the  other 
in  his  own  work,  and  therefore  there  is  a  mutual  gain  in  their 
exchanging  works.  To  pretend  that  there  would  be  any 
exchange  between  them,  in  case  the  blacksmith  could  make 
coats  as  well  as  the  tailor,  and  the  tailor  shoe  horses  as  well 
as  the  blacksmith,  would  be  to  assert  that  man  acts  without 
a  motive,  and  that  exchanges  take  place  without  a  gain.  It 
was  also  shown  in  the  same  connection,  that  the  greater  the 
difference  of  relative  advantage,  the  greater  the  gain  of  an 
exchange,  because  each  purchases  the  service  of  the  other  at 
the  rate  of  his  own  highest  efficiency.  To  recur  to  the  same 
example,  while  the  efficiency  of  the  tailor  and  the  blacksmith 
each  in  his  own  trade  remained  at  6,  the  efficiency  of  each  in 
the  trade  of  the  other  being  at  5,  there  was  only  a  gain  of  2 
to  be  divided  between  them ;  but  when  by  concentration  and 
application  the  efficiency  of  each  in  his  own  trade  rose  to  15, 
his  efficiency  in  the  other  remaining  at  5,  there  was  a  gain  of 
20  to  be  divided  between  them.  When  the  relative  superi¬ 
ority  of  each  over  the  other  in  his  own  trade  was  low,  the 
gain,  though  sufficient  to  justify  the  exchange,  was  small ;  but 
when  the  difference  of  relative  advantage  increased,  just  in 
that  ratio  did  the  exchange  become  more  profitable  to  both. 
The  obvious  inference  from  this,  then  drawn,  and  now  re¬ 
peated,  is,  that  every  person  who  exchanges  with  others  is 
directly  interested  in  the  highest  efficiency  and  success  of 
their  efforts  as  w’ell  as  his  own.  The  diversity  of  relative 
advantage  at  different  points  exhibited  by  different  nations, 
and  consequently  the  gains  of  international  exchange,  were 
expressly  reserved  at  that  point  to  a  later  stage  of  our 
inquiry.  That  stage  is  now  reached. 

The  various  countries  of  the  earth  have  received  from  the 


FOREIGN  TRADE. 


465 


hands  of  God  a  diversity  of  original  gifts,  in  climate,  soil, 
natural  productions,  position,  and  opportunity.  This  diver¬ 
sity  exists  for  a  good  design,  and  can  never  be  substantially 
reduced  by  man,  even  if  there  were,  as  there  is  not,  any  good 
reason  for  desiring  to  reduce  it.  Besides  original  diversity 
in  these  respects,  there  has  been  developed  in  the  history  of 
the  inhabitants  of  these  countries,  a  diversity  of  tastes, 
aptitudes,  habits,  strength,  intelligence,  and  skill  to  avail 
themselves  of  the  forces  of  Nature  around  them.  These 
differences  are  somewhat  less  inherent  and  more  flexible  than 
the  others,  but  they  exist,  and  always  have  existed,  and  in  a 
greater  or  less  degree  always  will  exist ;  and  it  is  on  these 
diversities,  original,  traditional,  and  acquired,  that  interna¬ 
tional  commerce  depends  ;  it  never  would  have  come  into 
existence  without  them,  and  it  would  cease  instantly  and 
completely  were  they  to  fade  out.  Men  do  not  engage  in 
foreign  trade  for  the  pleasure  of  it ;  they  engage  in  it  for  the 
sake  of  the  mutual  gain  derivable  to  both  parties ;  they 
desist  from  it  so  soon  as  that  mutual  gain  disappears ;  and 
there  is  no  mutual  gain  in  any  series  of  exchanges,  unless 
each  party  has  a  superior  power  in  producing  that  which  is 
rendered,  compared  with  his  power  in  producing  that  which 
is  received. 

For  the  sake  of  illustrating  in  order  the  common  principles 
of  foreign  trade,  we  will  now  take  a  simple  supposed  case, 
a  trade  between  England  and  France  in  cottons  and  silks, 
and  follow  it  through  clearly  to  the  end.  The  first  question 
is,  when  will  it  be  mutually  profitable  for  England  to  send 
cottons  to  France  to  buy  silks  with,  and  France  to  send  silks 
to  England  to  buy  cottons  with  ?  Money  and  all  other  com¬ 
modities  except  these  two  are  out  of  the  question  now,  though 
we  shall  use  the  denominations  of  money  for  comparing  the 
respective  efforts,  translating  pounds  and  francs  into  dollars 
for  simplicity’s  sake.  The  answer  is  easy  :  the  trade  will  be 
mutually  profitable  when  efforts  bestowed  in  France  upon 
silks  will  procure,  through  exchange  with  England,  more  of 


466 


POLITICAL  ECONOMY. 


» 

cottons  than  the  same  amount  of  efforts  bestowed  in  France 
upon  cottons  will  produce  of  cottons  directly ;  and  then, 
when  efforts  bestowed  upon  cottons  in  England  will  procure 
more  of  silks,  through  exchange  with  France,  than  the  same 
amount  of  efforts  bestowed  in  England  upon  silks  will  pro¬ 
duce  of  silks  directly.  So  long  as  there  is  a  difference  of 
relative  efficiency  in  the  production  of  the  two  commodities 
:n  the  two  countries,  so  long,  setting  cost  of  carriage  aside, 
may  there  be  a  profitable  exchange  of  the  two.  To  make 
such  an  exchange  profitable  to  both  parties,  it  is  not  at  all 
needful  that  the  cottons  exchanged  for  the  silks  shall  have 
cost  the  English  as  many  days’  labor  as  the  silks  may  have 
cost  the  French ;  or  that  the  silks  shall  cost  the  French  as 
much  as  the  cottons  cost  the  English  ;  it  is  not  a  question 
of  the  absolute  cost  of  either  commodity  to  the  parties  pro¬ 
ducing  it ;  but  a  question  of  the  relative  cost  of  that  produced 
in  either  country  compared  with  what  would  be  the  cost  of 
the  other  commodity  were  it  to  be  produced  in  that  country. 
A  demand  in  each  country  for  the  product  of  the  other  is 
of  course  presupposed  in  the  illustration.  In  effect  the 
Frenchmen  ask,  Can  we  get  more  and  better  cottons  by  work¬ 
ing  on  silks  and  then  trading  them  off  for  English  cottons, 
than  we  can  get  by  the  same  efforts  in  working  on  cottons  at 
home?  The  Englishmen  ask,  Can  we  get  more  and  better 
silks  by  working  on  cottons  and  then  trading  with  France 
for  silks,  than  we  can  get  by  trying  to  make  silks  at  home? 
Suppose  that  efforts  in  England  on  certain  cottons  be  gauged 
at  $100,  and  efforts  in  France  on  certain  silks  be  gauged  at 
$80,  and  these  exchange  against  each  other,  is  that  a  losing 
trade  for  England  or  a  gainful  trade  for  France?  We  can¬ 
not  tell  yet.  It  depends  upon  this :  whether  the  efforts 
estimated  at  $100  if  expended  in  England  in  the  manufac¬ 
ture  of  silks  will  procure  as  many  and  as  good  silks  as  the 
same  efforts  obtain  in  exchange  with  France,  and  whether 
the  efforts  estimated  at  $80  if  expended  in  France  on  cottons 
will  secure  as  many  of  them  as  if  expended  on  silks  and 


FOREIGN  TRADE. 


467 


then  traded  for  cottons.  Consequently  it  is  not  the  absolute 
cost  of  the  commodities  to  the  countries  producing  them 
which  determines  their  value  in  foreign  trade,  but  it  is  the 
relative  efficiency  of  each  country  in  growing  or  manufac¬ 
turing  the  commodities  to  be  exchanged.  It  follows,  that, 
setting  aside  a  greater  cost  of  carriage,  foreign  trade  presents 
no  elements  peculiar  to  itself,  but  only  the  same  elements 
which  domestic  trade  presents ;  and  consequently,  that  the 
same  laws  and  limitations  applicable  to  domestic  exchanges 
are  applicable  also  to  foreign  exchanges.  As  in  every  other 
exchange,  so  here,  there  are  two  efforts,  represented  in  this 
case  by  the  cost  of  the  respective  commodities,  —  the  cottons 
$100,  and  the  silks  $80  ;  there  are  two  desires,  — the  desire 
of  the  Englishman  for  silks,  and  of  the  Frenchman  for  cot¬ 
tons  ;  there  are  two  estimations,  —  the  estimation  of  the 
Frenchman  of  the  effort  in  silks  required  to  obtain  the  cottons 
by  exchange  compared  with  the  effort  required  to  obtain  them 
directly,  and  the  Englishman’s  estimation  of  his  effort  in 
cottons  necessary  to  procure  the  silks  in  exchange,  compared 
with  what  would  be  the  effort  needed  to  manufacture  the  silks 
in  England  ;  and,  finally,  as  always,  two  satisfactions. 

The  second  question  is,  how  does  the  diversity  of  relative 
advantage  practically  work  in  foreign  trade?  If  we  suppose 
that  while  the  cottons  cost  $100  in  England,  it  would  cost 
$120  to  manufacture  there  as  good  silks  as  can  be  made 
in  France  for  $80 ;  and  that  while  the  silks  cost  but  $80  in 
France,  it  would  cost  $96  to  make  cottons  there  as  good  as 
the  English  can  make  for  $100.  On  this  supposition,  France 
can  make  both  silks  and  cottons  at  a  cheaper  absolute  cost 
•  than  England  can.  But  does  that  destroy  the  motive  and 
the  gain  of  an  exchange  between  the  countries  in  these  two 

o  o 

articles?  Let  us  see.  By  exchange  with  England,  France 
gets  for  $80  in  silks,  cottons  which  would  otherwise  cost  her 
$96,  — a  handsome  gain  of  20%  ;  England  gets  for  cottons 
costing  her  $100  silks  which  would  otherwise  have  cost  her 
$120, another  handsome  gain  of  20%.  Though  France 


468 


POLITICAL  ECONOMY. 


can  make  each  commodity  for  less  absolute  money  than 
England  can  make  either,  there  is  a  diversity  of  relative 
advantage,  and  therefore  there  might  be  in  this  case,  as 
there  is  actually  in  many  such  cases,  a  profitable  trade. 
The  efficiency  of  France  in  making  silks,  relatively  to  that 
of  England  in  making  silks,  is  in  the  ratio  of  80  to  120, — 
a  difference  of  50  %  ;  while  the  efficiency  of  France  in  mak¬ 
ing  cottons,  relatively  to  that  of  England  in  making  the 
same^  is  only  in  the  ratio  of  96  to  100,  —  a  difference  of 
4 \°]0'  In  the  majority  of  cases,  doubtless,  foreign  trade 
takes  place  in  articles,  in  the  production  of  one  of  which 
each  of  the  respective  countries  has  an  absolute  advantage 
over  the  other,  but  an  every  way  advantageous  trade  may 
be  carried  on  in  articles  in  the  production  of  both  of  which 
one  nation  shall  have  an  absolute  superiority  over  the  other, 
provided  only  that  this  superiority  be  relatively  diverse  in 
the  two  articles,  as  has  just  been  shown.  This  is  an 
effectual  answer  to  the  clamor  of  some,  who  object  to  im¬ 
porting  articles  which  might  be  made  at  home  for  the  same 
sum  of  money  as  foreigners  expend  in  making  them ;  ad¬ 
mitted,  that  they  might  be  so  made ;  does  it  follow  that  the 
country  importing  them  would  get  them  as  cheaply  by 
making  them  itself?  By  no  means  does  that  follow.  By 
the  supposition,  the  importing  country  has  an  efficiency  in 
making  those  articles  equal  to  that  of  the  foreign  country ; 
but  it  may  also  have  a  superiority  absolute  or  relative  over 
that  country  in  the  production  of  other  articles  which  that 
country  wants  in  exchange  ;  if  so,  the  exchange  complained 
o.f  may  go  on  to  the  manifest  profit  of  both  parties.  Let  no 
nation  be  in  haste  then  to  drop  a  trade,  because  it  thinks  it 
can  make  the  article  received  in  exchange  as  cheaply  as  the 
other  nation  makes  it,  so  long  as  it  has  an  advantage  over 
the  other,  absolute  or  relative,  in  making  the  article  rendered 
in  exchange  ;  and  when  that  advantage  ceases,  the  trade 
will  drop  of  itself. 

The  third  question  ;>s,  what  are  the  extreme  limits  of  the 


FOREIGN  TRADE . 


469 


value  of  cottons  and  silks  in  the  case  supposed,  and  when 
will  a  third  nation  be  able  to  undersell  either  in  the  ports  of 
the  other  ?  The  answer  is  :  the  extreme  value  of  French 
silks  in  English  cottons,  will  be  80  and  96  ;  they  cannot 
fall  below  80,  because  they  cost  the  French  that  to  produce 
them;  they  cannot  rise  above  96,  because  at  that  rate  the 
French  can  make  cottons,  and  there  would  be  no  gain  in 
exchanging.  Nations,  no  more  than  individuals,  will  get 
themselves  served  at  a  greater  effort  than  that  at  which  they 
can  serve  themselves.  If  a  given  effort  does  not  realize 
more  through  exchange  than  it  would  directly,  then  the 
exchange  ceases  of  necessity,  as  fire  goes  out  for  lack  of 
fuel.  The  extreme  limits  of  the  value  of  English  cottons  in 
French  silks,  will  be  100  and  120,  for  reasons  precisely 
similar.  Therefore  the  highest  profits  possible  to  both 
nations,  under  the  conditions  of  the  trade,  are  20%  each. 
France  would  be  glad  to  take  the  cottons  at  a  return  of  80, 
at  which  rate  her  gain  would  be  20%  ;  and  she  cannot  under 
any  circumstances  offer  quite  96,  at  which  rate  her  gain 
would  disappear.  No  third  nation,  therefore,  in  a  trade  of 
silks  for  cottons,  can  expel  the  French  from  the  English 
ports,  until  it  is  prepared  to  offer  nearly  96,  or  more,  in  silks 
in  return  for  English  cottons ;  that  is  to  say,  until  its  effi¬ 
ciency  in  making  silks  relatively  to  that  of  England  in 
making  them,  presents  a  greater  difference  than  the  differ¬ 
ence  of  efficiency  between  France  and  England  in  making 
silks,  which  is  a  difference  of  50%.  A  greater  difference  of 
relative  advantage,  and  nothing  else,  will  enable  a  third 
nation  to  undersell  France  in  such  a  trade.  England  would 
be  glad  to  take  the  silks  at  a  return  of  100,  at  which  rate 
her  gain  is  20%  ;  and  she  cannot  possibly  offer  quite  120, 
because  at  that  rate  her  gain  would  wholly  vanish.  She 
could  be  undersold  in  the  French  ports,  under  similar  con¬ 
ditions,  and  not  otherwise,  as  the  French  in  her  own  ports, 
as  just  now  indicated.  We  have  seen  that  the  diversity  of 
relative  advantage  in  the  production  of  the  two  articles  in 


470 


POLITICAL  ECONOMY. 


i  • i 

the  two  countries  is  in  the  ratio  of  50  to  4^ ;  France  has  an 
absolute  Advantage  in  the  production  of  both  commodities ; 
the  trade  proceeds  simply  on  the  basis  of  this  relative  diver¬ 
sity  ;  and  no  nation  can  take  away  the  silks  of  France  from 
England,  or  the  cottons  of  England  from  the  French,  either 
with  other  cottons  and  silks,  or  any  other  commodity,  ex¬ 
cept  on  the  basis  of  a  diversity,  absolute  or  relative,  greater 
than  this.  Here  is  the  whole  doctrine  of  one  nation  under¬ 
selling  another  in  the  ports  of  a  third.  It  can  do  so  under 
conditions  of  greater  relative  efficienc}’,  and  not  otherwise. 

The  fourth  question  is,  how  does  the  varying  play  of  in¬ 
ternational  demand  affect  the  value  of  articles  in  foreign 
trade?  The  answer  is :  if  the  demand  for  French  silks  in 
England  just  answers  to  the  demand  for  English  cottons  in 
France,  so  that  the  silks  offered  by  France  just  pay  for  the 
cottons  offered  by  England,  then,  cost  of  carriage  aside, 
the  gains  of  the  trade  will  be  equally  divided  between  the 
two  nations,  each  will  realize  20%  profit,  because  neither  will 
have  any  motive  to  lower  the  value  of  its  commodity  below 
its  highest  value ;  France,  from  its  point  of  view,  will  offer 
80  in  silks  and  get  96  in  cottons  ;  England,  from  her  point, 
will  offer  100  in  cottons  and  get  120  in  silks.  Demand  and 
supply  are  equalized  at  a  point  of  value  most  favorable  to 
both  parties,  and  really  determined  by  the  relative  cost  of 
production.  This  case  of  equalization,  though  possible, 
is  likely  rarely  to  occur  in  practice.  On  any  terms  of  ex¬ 
change  first  offered,  there  is  likely  to  be  a  stronger  demand 
in  one  country  for  the  product  of  the  other  than  in  this 
country  for  the  product  of  that.  This  will  lead  to  a  change 
of  value,  and  a  new  division  of  profits.  The  product  for 
which  the  demand  is  less  will  find  its  market  sluggish,  and 
in  order  to  tempt  further  and  brisker  exchanges,  will  be 
compelled  to  offer  more  favorable  conditions.  He  who 
enters  a  market  in  quest  of  what  is  more  in  demand  with  a 
service  in  reti  rn  which  is  less  in  demand,  will  have  to  lower 
his  terms,  or  not  trade.  The  equalization  of  supply  and 


FOREIGN  TRADE. 


471 


demand  will  only  be  reached  in  this  case,  by  quickening  the 
demand  for  the  commodity  now  less  in  demand,  through  an 
offer  of  better  terms  in  trade.  Thus,  if  the  demand  for 
French  silks  in  the  English  ports  be  slack,  in  comparison 
with  the  demand  for  English  cottons  in  France,  at  the  rate 
of  exchange  first  established  —  80  for  9G,  the  French  mer¬ 
chant  has  no  resource,  if  he  wishes  to  continue  the  trade, 
but  to  offer  more  silks  for  the  same  amount  of  cottons,  say, 
85  for  96.  If  this  reduction  prove  sufficient  to  cancel  the 
account  in  cottons  with  the  account  in  silks,  then  the  trade 
will  go  on  on  this  new  basis  for  a  while,  the  equalization  of 
supply  and  demand  has  been  reached  through  a  new  valua¬ 
tion  of  the  commodities,  and  there  is  now  a  different  division 
of  the  profits.  France  gains  less  than  13%  by  her  trade 
with  England,  while  England  gains  27%  in  her  trade  with 
France.  Under  these  new  terms  of  exchange,  it  is  possible 
that  silks  may  again  become  heavy  in  reference  to  cottons, 
and  a  new  decline  take  place  in  their  relative  value.  If  the 
French  are  obliged  to  offer  90  for  96,  in  order  to  obtain 
the  cottons  they  want,  their  profits  will  sink  to  6%,  while 
the  English  profits  will  rise  to  35%.  If,  in  any  contin¬ 
gency,  the  French  were  compelled  to  offer  in  the  neighbor¬ 
hood  of  96  in  silks  for  96  in  cottons,  the  trade  would  cease 
of  course,  just  as  every  other  transaction  ceases  when  the 
motive  for  it  ceases.  Of  course,  the  cottons  are  just  as  likely 
to  become  dull  in  reference  to  silks,  as  the  silks  to  cottons, 
and  in  this  case  England  must  lower  her  demands,  and  thus 
surrender  a  larger  share  of  the  profits  to  France.  By  the 
play  of  supply  and  demand,  within  the  outermost  limits 
drawn  by  the  relative  cost  of  production,  is  the  value  of 
articles  determined  in  foreign  trade  ;  and  no  degree  of  com¬ 
plication  in  the  variety  of  articles,  or  in  circuitous  exchanges, 
affects,  for  substance,  these  fundamental  principles. 

It  follows  from  these  principles  by  necessary  inference, 
that,  if,  instead  of  one  article,  as  cottons,  England  sends 
two  articles,  or  ten,  to  France  in  payment  for  silks,  she  wifi 


472 


POLITICAL  ECONOMY. 


send  in  preference  that  article  in  which  her  labor  is  relatively 
most  efficient,  so  long  as  the  French  demand  will  receive  it; 
then,  when  obliged  to  lower  on  that  down  to  the  point  at 
which  her  next  most  available  article  stands,  she  will  send 
that  in  quantities  regulated  by  the  demand  for  it ;  and  so 
on  to  the  end.  No  matter  whether  the  articles  be  one  or 
many ;  no  matter  whether  the  trade  be  a  direct,  or  an  in¬ 
direct,  trade  ;  the  profits  in  all  cases  will  depend,  first  upon 
the  ratio  of  the  cost  of  what  is  rendered  to  what  would 
otherwise  be  the  cost  of  that  received  ;  and  secondly,  upon 
the  relative  intensity  of  the  two  demands.  The  greater  the 
relative  efficiency  of  any  nation  in  producing  an  article 
of  expert,  and  the  stronger  the  demand  for  that  article  in 
foreign  ports,  the  more  profitable  does  the  trade  become  to 
that  nation.  The  precious  metals,  whether  produced  at 
home,  or  obtained  from  other  nations  by  another  series  of 
exchanges,  stand  here  in  the  same  relations  as  other  com¬ 
modities,  and  are  frequently  the  most  profitable  articles  that 
a  nation  can  export. 

It  follows  also  from  these  principles,  that  what  a  nation 
purchases  by  its  exports,  it  purchases  by  its  most  efficient 
labor,  and  consequently  at  the  cheapest  possible  rate  to 
itself.  Only  those  things,  for  the  procuring  of  which  a 
nation  possesses  decided  advantages  relatively  to  other 
nations,  and  relatively  to  its  own  advantages  in  producing 
directly  what  is  received  in  return,  are  ever  exported  ;  and 
hence,  the  return  cargoes,  no  matter  what  they  have  cost 
their  original  producers,  are  purchased  by  this  nation  as 
cheaply  as  if  they  had  been  produced  by  its  own  most 
advantageous  labor.  This  is  a  wholly  impregnable  position, 
and  the  advocates  of  restricting  foreign  trade  are  challeng  id 
to  try  their  hand  a  little  at  its  defences. 

It  follows  once  more  from  these  principles,  that  those 
men,  who  deem  it  needful  that  each  nation  should  be  able 
to  “  compete  ”  with  other  nations  in  ever}' thing,  are  shallow 
thinkers.  Why  are  they  not  consistent  enough  to  apply 


FOREIGN  TRADE. 


473 


their  favorite  doctrine  of  “competing”  to  domestic  ex¬ 
changes  also,  and  demand  that  the  clergyman  shall  have 
facilities  for  “competing”  with  the  lawyer,  the  tailor  with 
the  blacksmith,  the  farmer  with  the  manufacturer,  the  pub¬ 
lisher  with  the  author?  Will  people  never  learn  that  all 
exchanges,  domestic  as  well  as  foreign,  depend  on  relative 
superiority  at  different  points,  and  that  a  nation  which 
should  try  to  make  its  success  in  production  equal  at  all 
points,  would  be  as  foolish  as  an  artisan  trying  to  learn 
and  practise  all  trades  at  once?  Suppose  the  nation  to 
succeed,  what  then?  It  would  supply  its  wants  at  a  certain 
average  efficiency  of  effort ;  whereas,  by  a  thorough  develop¬ 
ment  of  all  its  own  peculiar  resources,  it  could  command  by 
exchange  the  products  of  the  world  at  a  cost  not  exceeding 
that  of  its  own  most  productive  and  efficient  exertion.  In 
one  word,  whatever  justifies  individuals  in  selecting  diverse 
paths  of  production  according  to  their  capacities  and  oppor¬ 
tunity,  the  same  justifies  the  nations  in  fully  drawing  out 
their  own  best  capabilities  under  the  conditions  in  which 
God  has  placed  them,  and  then,  exchanging  what  costs 
them  little  for  what  would  otherwise  cost  them  much,  in 
enjoying  all  that  the  world  offers  at  the  least  expenditure  of 
irksome  effort.  Such  action  promotes  the  common  good 
of  all  the  nations,  and  makes  the  best  of  all  accessible  to 
all,  and  arms  each  with  the  power  of  all ;  while  the  opposite 
action,  by  lessening  the  diversities  of  relative  advantage,  so 
far  forth  incapacitates  all  for  exchanges  which  are  at  once 
profitable  and  stimulating. 

The  fifth  question  is,  how  do  new  improvements  in  machine¬ 
ry  and  other  enhanced  facilities  of  production  in  one  country 
affect  its  trade  with  other  countries?  The  true  answer  will 
appear,  if  we  apply  this  question  to  the  conditions  of  the 
trade  in  hand.  Suppose  France  by  new  methods  of  silk 
culture  to  become  able  to  make  the  silk  which  before  cost  $80 
for  $50,  cottons  in  France,  and  silk  and  cottons  in  England, 
remaining  in  natural  cost  as  before,  does  France  alone  gain 


474 


POLITICAL  ECONOMY. 


« 

the  entire  advantage  of  the  increased  cheapness  of  silk? 
We  will  see.  The  production  of  silk  in  France  is  greatly 
quickened  by  the  cheaper  methods,  more  is  produced,  more 
is  carried  to  England  to  buy  cottons  with,  but  at  the  old  rate 
of  80  for  96  the  English  will  not  take  any  more  silks,  and 
the  French,  who  can  now  abundantly  afford  it,  since  their 
nominal  80  is  really  50,  will  offer  more  silks  for  96  in  cottons, 
in  order  to  tempt  a  brisker  and  broader  sale.  They  offer, 
say,  96  in  silks  for  96  in  cottons,  and  if  that  reduction  of 
value  of  silks  in  cottons  be  enough  for  the  equalization 
of  the  respective  demands,  the  trade  will  go  on  on  that  basis, 
at  least  for  a  time  ;  and  as  there  is  now  a  larger  difference 
of  relative  advantage  than  before,  there  will  be,  as  always 
in  such  cases,  larger  profits  to  be  divided  between  the  two 
parties.  The  96  now  offered  in  silks  to  the  English  is  really 
only  60  in  cost  to  the  French,  so  that  the  French  gain  in  the 
trade  is  largely  increased  ;  they  now  get  for  what  costs  them 
60  what  would  otherwise  cost  them  96,  a  clear  gain  of  60%. 
Before  the  new  methods  of  silk  culture  were  introduced  they 
gained  only  20%.  But  the  English  have  also  gained  largely 
by  the  ingenuity  and  diligence  of  their  neighbors.  Before, 
they  gained  only  20%  in  the  trade  at  best ;  now  they  get  for 
what  costs  them  $100  that  which'  otherwise  would  cost  them 
$144,  a  clear  gain  of  44%.  Indeed,  it  might  easily  happen, 
through  the  changes  in  international  demand,  that  even  a 
larger  share  of  the  benefit  of  the  French  improvements 
should  accrue  to  the  English  than  to  the  French  themselves  ; 
the  share  of  the  French  all  the  while  being  large,  and  much 
larger,  than  if,  greedily  endeavoring  to  keep  all  the  benefit, 
they  refused  to  trade  at  all.  Thus  we  reach  again,  from 
another  outlook,  a  grand  doctrine  of  exchange,  that  each 
party  is  benefited  by  the  progress  and  prosperity  of  the 
other.  The  only  way  in  which  all  nations  can  share  in  the 
benefits  of  the  thrift  and  enterprise  of  each  other,  is  through 
mutual  international  exchanges  ;  and  when  each  nation  sees 
to  it  that  it  has  a  few  commodities  at  least  for  which  there 


FOREIGN  TRADE. 


475 


is  a  strong  demand  among  foreigners,  and  in  the  production 
of  which  themselves  have  a  strong  superiority,  it  may  rest 
assured  that  it  buys  all  it  buys  from  abroad,  gold  included, 
at  the  cheapest  rate  to  itself,  and  shares  a  part  of  the  pros¬ 
perity  of  every  nation  with  which  it  trades. 

The  sixth  question  is,  which  party  in  foreign  trade  pays 
the  costs  of  carriage,  or  does  each  pay  them  in  equal  propor¬ 
tion?  The  aggregate  cost  of  transportation  to  the  foreign 
market  is  so  much  added  to  the  cost  of  production,  and  is 
a  deduction  of  so  much  from  what  would  otherwise  be  the 
whole  gain  of  the  exchange  ;  but  it  is  not  true  that  each  party 
necessarily  pays  the  whole  of  his  own  freights,  and  there¬ 
fore,  that  the  party  carrying  bulky  articles  is  at  a  disadvan¬ 
tage  compared  with  the  other.'  He  may  or  may  not  be  at  a 
disadvantage.  That  will  depend  on  the  effect  of  the  new 
expense,  however  divided,  on  the  demand  in  the  respective 
countries.  Suppose,  that  in  the  outset  England  pays  the 
whole  cost  of  carrying  cottons  to  France,  and  France  the 
whole  cost  of  sending  the  silks  to  England ;  but  as  cottons 
are  many  times  more  bulky  than  silks  proportionably  to 
value,  a  larger  bill  of  freights  would  fall  to  England ;  and 
cottons  would  therefore  fall  relatively  to  silks ;  but  cottons 
and  silks  both  have  risen  absolutely,  that  is,  with  reference 
to  a  given  effort,  or  with  reference  to  a  money  standard. 
Suppose  that  France,  instead  of  80  for  9G,  now  has  to  give 
82  for  9G,  and  England,  instead  of  100  for  120  now  has  to 
give  105  for  120.  The  French  gain  in  the  trade  is  reduced 
by  cost  of  carriage  from  20%  to  nearly  17,  and  the  English 
gain  from  20%  to  nearly  14  ;  but  it  is  by  no  means  certain 
that  the  trade  would  go  on  on  these  terms ;  the  enhanced 
value  of  silks  might  well  deaden  the  demand  for  them  in 
England,  more  than  the  relatively  less  enhanced  value  of 
cottons  in  France  would  affect  the  demand  for  them.  Silks 
have  risen  in  England  5%,  but  cottons  have  risen  in  France 
only  2^%  ;  it  is  therefore  every  way  likely  that  thereafter 
the  demand  for  cottons  will  be  stronger  than  the  demand  for 


476 


POLITICAL  ECONOMY. 


! 

silks,  and  if  so,  the  French  will  have  to  offer  better  terms, 
or,  what  is  the  same  thing,  be  obliged  to  pay  a  part  of  the 
English  freights  ;  so  that  there  is  nothing  in  the  true  state 
of  the  case  to  justify  the  conclusion  jumped  at  by  some  people 
that  they  who  carry  heavy  goods  are  at  a  disadvantage  com¬ 
pared  with  those  who  carry  light  goods.  That  will  depend 
on  the  equation  of  international  demand.  Nothing  in  the 
nature  of  things  hinders,  that  each  party  shall  in  effect  pay 
the  freights  of  the  other,  or  one  even  really  pay  the  freights 
of  both. 

These,  then,  are  the  essential  principles  of  foreign  trade, 
brought  out,  it  is  hoped,  as  clearly  and  consecutively  as  the 
relative  and  complicated  nature  of  the  transactions  will  allow  ; 
and  in  the  light  of  these  principles  it  is  very  clear  that  for¬ 
eign  trade  is  just  as  legitimate  as  domestic  trade ;  that  it 
rests  on  the  same  ultimate  principles  in  the  constitution  of 
man  and  in  the  providential  arrangements  of  Nature ;  that 
the  profit  of  it  is  mutual  to  both  parties,  or  it  would  never 
come  into  being,  or,  coming  into  being,  would  cease  of  itself ; 
that  to  prohibit  it,  or  restrict  it,  otherwise  than  in  the  interest 
of  morals,  health,  or  revenue,  must  find  a  justification,  if  at 
all,  outside  the  pale  of  Political  Economy ;  that  to  say  to 
any  body  of  men  who  wish  to  render  purely  commercial  ser¬ 
vices  to  foreigners,  to  receive  back  similar  services  in  return, 
that  such  services  shall  neither  be  rendered  nor  received,  is 
not  only  to  destroy  a  certain  gain,  but  also  to  interfere  with 
a  natural  and  inalienable  right. 

Notwithstanding  this  demonstrated  identity  of  foreign  with 
domestic  trade  in  motives  and  methods  and  mutual  benefits, 
there  are  still  some  persons  who  persuade  themselves  that 
foreign  trade  ought  to  be  cut  short  by  law,  and  even  yet 
some  nations  whose  public  policy  it  is  to  make  small  their 
exchanges  with  other  nations.  This  persuasion  comes,  and 
this  policy  is  pushed,  under  a  view  and  system  commonly 
called  “  Protection  to  Domestic  Industry .”  This  phrase, 
always  euphonious  and  long  ago  become  famous,  is  very 


FOREIGN  TRADE. 


477 


little  indicative  of  the  true  nature  of  the  system  sought  to  be 
described  by  it ;  the  scheme  itself  in  every  part  is  in  conflict 
with  the  principles  laid  down  in  every  part  of  this  treatise  ;  and 
we  must  now  turn  to  its  origin,  methods,  fallacies  and  fruitage. 

1.  Let  us  look  at  the  origin  of  ‘‘Protection.”  As  was 
fully  brought  out  in  our  opening  chapter,  the  Mercantile 
System,  whose  wisdom  or  folly  it  was  to  sell  many  goods 
and  buy  few  so  as  to  have  a  balance  in  gold  and  silver,  to 
offer  in  the  interest  of  such  a  balance  bounties  to  exporters 
to  encourage  them  to  sell  and  lay  prohibitions  on  importers 
to  prevent  their  buying,  was  the  bad  mother  of  this  worse 
offspring  misnamed  “  Protection.”  The  parent  is  long  ago 
dead  and  buried,  but  the  progeny  has  not  yet  found  its  pre¬ 
destined  death  and  doom.  The  taint,  however,  of  its  birth 
and  breeding  rests  on  it  like  a  curse ;  even  if  let  alone,  it 
would  now  have  been  in  its  decrepitude  owing  to  the  poisons 
in  its  blood ;  but  an  incurable  wound  was  inflicted  on  it  in 
1776  by  one  Adam  Smith,  hastening  it  towards  its  burial; 
the  centennial  of  that  event  and  of  American  Independence 
found  in  it  a  lingering  energy  of  evil,  especially  in  the  United 
States  ;  and  Political  Economy,  denouncing  it  as  the  enemy 
of  mankind,  hopes  soon  to  throw  upon  its  loathsome  carcass 
the  last  shovelfuls  of  cleansing  earth. 

As  a  single  example  to  illustrate  how  Protection  sprang 
out  of  the  Mercantile  System  and  how  it  maintained  itself 
after  that  system  became  discredited,  let  us  look  at  the  caae 
of  the  English  silk  culture.  As  France  had  great  advantages 
for  the  culture  of  the  mulberry  and  the  manufacture  of  silk 
in  a  sunny  climate  and  fertile  soil,  England  naturally  bought 
silks  of  France  and  paid  for  them  in  her  own  hardier  prod¬ 
ucts  ;  so  of  wines,  and  other  things  produced  in  France  with 
special  facilities ;  but  England  under  the  influence  of  the 
Mercantile  System  was  eager  to  sell  to  France  a  larger  vol¬ 
ume  and  value  of  products  than  she  bought  of  France,  in 
order  to  get  the  coveted  balance,  and  so,  forgetting  that 
France  be.ieved  in  the  same  system  too  and  would  surely 


478 


POLITICAL  ECONOMY. 


)  ;  ] 

retaliate  on  English  goods,  England  laid  heavy  restraints  on 
the  importation  of  foreign  silks  in  the  foolish  hope  that  she 
might  make  the  silks  herself  and  so  help  the  balance  of 
trade ;  and  thus  England,  damp  and  cold,  in  the  very  teeth 
of  Nature’s  protests,  undertook  to  rival  France  in  the  manu¬ 
facture  of  silks.  As  an  inducement  to  capital  and  labor 
to  withdraw  themselves  from  natural  and  profitable  employ¬ 
ments  and  undertake  the  unnatural  and  unprofitable  culture 
of  silk,  the  virtual  monopoly  of  the  home  market  was  given 
to  them  by  law.  Silks  were  made  scarce  and  dear  bjT  pro¬ 
hibitions  on  their  import,  and  all  buyers  compelled  to  pay 
an  artificial  price,  in  the  vain  hope  of  naturalizing  thereby  an 
unfit  industry,  and  of  continuing  to  sell  to  France  as  much 
as  before  while  getting  in  return  less  goods  and  more  gold. 

Of  course,  France  soon  retaliated  by  prohibiting  English 
woollens ;  the  two  neighbor  nations  eyed  each  other  across 
the  Channel  to  see  which  could  steal  a  march  on  the  other  in 
the  way  of  restraints  and  damage  to  each  other’s  industries  ; 
in  William  and  Mary’s  reign,  Parliament  voted  that  the 
French  trade  teas  a  nuisance ;  and  Adam  Smith  tells  us  that, 
in  his  time,  smugglers  were  the  chief  importers  of  French 
goods  into  Britain  and  of  British  goods  into  France. 

But  England  had  the  silk  industry  on  its  hands.  Those 
who  had  embarked  in  it  under  artificial  stimulus  relied  of 
course  upon  that,  and  no  longer  upon  their  own  vigor  and 
ingenuity ;  they  kept  clamoring  for  still  greater  restraints 
against  their  foreign  competitors ;  the  idea  of  Protection 
more  and  more  took  the  place  of  the  idea  of  a  favorable 
Balance  of  Trade  ;  for  more  than  a  century  the  silk  culture, 
fenced  round  and  “protected”  by  these  prohibitory  laws, 
languished  and  at  times  almost  expired,  for  the  two  reasons, 
that  the  industry  then  and  there  was  unnatural,  and  that 
the  manufacturers  instead  of  relying  on  their  own  skill  and 
energy  looked  for  support  to  an  artificial  monopoly ;  and  it 
would  have  remained  to  this  day  feeble  and  dependent,  had 
not  a  great  statesman,  Huskisson,  who  was  denounced  as 


FOREIGN  TRADE. 


479 


ua  hard-hearted  political  economist ,”  made  a  beginning  in 
1826  of  that  system  of  Free  Trade,  which  raised  some  forms 
of  this  particular  manufacture,  as  so  many  other  manufac¬ 
tures,  to  an  eminence  which  scouts  at  the  danger  of  foreign 
competition.  The  duties  on  foreign  thrown  silk  were  then 
reduced  from  nearly  fifteen  to  five  shillings  per  pound,  and 
on  raw  silk  from  nearly  six  shillings  to  three  pence  per 
pound ;  then  first  the  English  silk  culture  began  to  thrive ; 
generally  speaking,  it  has  thriven  from  that  day  to  this, 
though  only  in  certain  forms  of  the  trade,  in  spite  of  the 
disadvantages  of  nature  ;  the  duties  were  successively  low¬ 
ered  till  1860,  when  duties  of  every  kind  on  foreign  silks 
of  every  kind  were  abolished  under  the  lead  of  Gladstone; 
and  that  England,  which  was  to  be  ruined  in  1826  by  the 
importation  of  foreign  silks,  has  exported  since  1860  silks 
of  native  manufacture  sometimes  to  the  value  of  $10,000,- 
000  annually.1 

While,  then,  the  origin  of  Protection  is  to  be  sought  and 
will  be  found  in  the  follies  of  the  Mercantile  System,  its 
maintenance  or  adoption  in  any  modern  country  is  solely 
due  to  the  clamor  of  those  who  wish  to  secure  an  artificial 
market  for  their  wares  free  from  foreign  competition.  It 
can  be  historically  demonstrated,  that  no  protective  duty 
was  ever  laid  in  the  United  States  from  the  beginning  of 
the  government  till  this  hour,  except  at  the  instance  and 
under  the  pressure  of  the  very  men  who  expected  thereby  to 
get  artificial  prices  for  their  wares  at  the  cost  of  their  coun¬ 
trymen.  The  late  President  Garfield  told  the  present  writer 
with  emphasis  that,  while  he  was  on  the  Ways  and  Means 
Committee  of  Congress,  the  individuals  and  delegations  who 
came  before  that  committee  to  get  new  duties  put  on  or  old 
duties  raised,  came  in  the  barest  selfishness  without  a  thought 
or  care  but  for  the  extra  price  of  their  own  products.  The 
strength  of  Protection  has  been  in  the  greed  of  men  who 
hoped  to  be  aggrandized  thereby. 

1  Knight’s  llislory  of  England,  v.  21;  McCulloch’s  Diet,  ed.,  18G9,  Art.  Silk. 


480 


POLITICAL  ECONOMY. 


i 

2.  We  will  now  examine  the  methods  by  which  Protection 
seeks  to  reach  its  ends.  The  instrument  is  called  a  Tariff ; 
and  it  will  be  well  for  us  to  see  precisely  what  a  tariff  is, 
since  on  this  point  a  great  confusion  exists  in  the  popular 
mind.  The  origin  of  the  loord ,  as  usual,  will  throw  light 
upon  the  thing.  When  the  Moors  conquered  Spain  in  711, 
they  fortified  the  southernmost  point  of  the  Peninsula  where 
it  juts  down  into  the  Straits  of  Gibraltar,  and  by  means  of 
this  castle  and  town,  called  Tar  if  a,  compelled  all  vessels 
passing  through  the  Straits  to  stop  and  to  pay  a  certain 
proportion  of  the  value  of  their  cargoes  to  these  Moorish 
lords  of  the  castle ;  whence  the  word  Tariff  in  English  and 
other  languages.  This  payment  appears  to  have  been  black¬ 
mail  pure  and  simple  ;  it  was  extorted  by  force  ;  and  whether 
there  were  any  pretence  of  a  return  service  in  the  form  of 
exemption  from  further  pillage  or  not,  the  main  thing  to  be 
noticed  is,  that  what  was  paid  was  just  so  much  out  from 
what  would  otherwise  have  been  the  gains  of  the  voyage. 
The  sign  at  Tarifa  was  minus ,  and  not  plus.  This  is  not  a 
very  respectable  origin  of  a  word  which  seems  very  dear  to 
some  men’s  hearts,  though  this  is  not  sufficient  of  itself  to 
condemn  the  thing  described  by  the  word.  But  the  truth  is, 
the  thing  is  always  true  to  the  origin  of  the  word  so  far  as 
this,  that  a  tariff  always  takes ,  and  never  gives.  The  only 
phrase  a  tariff  speaks,  or  can  speak,  is,  Thou  shalt  pay  !  A 
tariff,  accordingly,  may  be  defined  as  a  body  of  taxes  levied 
in  some  way  upon  the  exchange  of  goods.  A  tariff  makes 
always  and  everywhere  demands  upon  somebod}-  ;  and  one 
peculiarity  of  the  matter  is,  that  these  demands  are  made  on 
and  realized  from  the  countrymen  of  those  who  get  the  tariff 
duties  put  on.  How  can  anybody  then  intelligently  suppose 
that  a  body  of  taxes ,  which  the  people  must  pay ,  can  be  so 
cunningly  adjusted  as  to  become  a  positively  productive  agent, 
a  spur  to  the  progress  of  society  ?  Taxes  of  some  kind  are 
indeed  necessary,  but  how  they  can  be  made  a  blessing  to 
the  payers  and  enrich  the  whole  societ}T,  they  must  explain 
who  suppose  that  possible,  provided  they  can  explain  it. 


FOREIGN  TRADE. 


481 


Under  this  general  definition  of  a  Tariff,  there  are  two 
kinds  of  tariffs  very  diverse  from  each  in  their  respective 
purposes,  principles,  incidence  and  results. 

(1)  There  is  a  tariff  for  Revenue.  The  sole  purpose 
of  a  revenue  tariff  as  such  is  to  get  mone}  for  the  coffers  of 
the  government  by  this  mode  of  indirect  taxation.  It  is  the 
underlying  thought  of  this  kind  of  tariff,  that  the  government 
shall  get  all  the  money  which  the  people  have  to  pay  under 
these  taxes,  except  the  bare  cost  of  collecting  them  ;  and  no 
intelligent,  justice-loving  people  will  long  tolerate  taxes  laid 
for  any  other  intent  than  the  support  of  their  government. 
A  revenue  tariff,  accordingly,  may  be  defined  as  a  schedule 
of  taxes  levied  on  imported  goods  with  an  eye  to  equitable 
taxation  only.  As  the  sole  object  is  to  get  money  for  the 
national  treasury,  such  taxes,  first,  must  not  interfere  essen¬ 
tially  with  the  bringing  in  of  the  foreign  goods,  that  is  to 
say,  they  must  be  levied  at  a  low  rate  on  each  article  taxed, 
so  as  not  much  to  discourage  importations  and  not  at  all  to 
encourage  smuggling;  second,  experience  has  shown  that  it 
is  not  needful  in  order  to  derive  a  large  revenue  to  la}7  even 
low  rates  on  all  goods  imported,  but  only  on  certain  classes 
of  them,  so  as  to  burden  at  as  few  points  as  possible  the 
ongoing  of  international  exchanges,  since  the  prosperity 
induced  by  commercial  freedom  enables  a  country  to  import 
and  to  pay  for  in  its  own  products  vast  quantities  of  the 
articles  subjected  to  the  tax,  so  that  large  revenues  come 
from  low  rates  levied  at  few  points  ;  and  third,  these  taxes 
should  be  laid  on  articles  wholly  or  mainly  procured  from 
abroad  and  not  also  produced  at  home,  for  otherwise  the  in¬ 
cidence  of  the  tax  on  the  portion  imported  will  raise  the  price 
of  the  portion  produced  at  home  also,  and  thus  the  people 
will  pay  more  in  consequence  of  the  tax  than  the  government 
gets  in  revenue.  These  three,  then,  are  the  vital  principles 
of  a  revenue  tariff,  namely,  low  duties ,  on  few  articles ,  and 
these  wholly  foreign. 

The  best  modern  example  of  a  purely  revenue  tariff  is  that 


482 


POLITICAL  ECONOMY. 


of  Great  Britain  since  18G0.  All  duties  are  on  one  or  other 
of  the  following  sixteen  articles,  namely,  Beer,  Cards,  Chic- 
cory,  Chocolate,  Cocoa,  Coffee,  Fruit,  Malt,  Pickles,  Plate, 
Spirits,  Spruce,  Tea,  Tobacco,  Vinegar,  and  Wine.  Of 
these,  Spruce  yielded  no  revenue  in  1880;  Cards,  Milt, 
Pickles,  and  Vinegar,  yielded  in  the  aggregate  only  £1,491  ; 
leaving  the  other  eleven  articles  to  furnish  practically  all  the 
customs  revenue ;  but  of  these,  Coffee  and  its  three  sub¬ 
stitutes,  and  Beer  and  Plate,  furnished  only  £337,258  in 
the  aggregate,  so  that,  the  five  remaining  articles  yielded 
£18,915,489  or  98%  of  the  whole.  In  other  words,  Fruit, 
Spirits,  Tea,  Tobacco  and  Wine,  bring  in  all  but  2%  of  the 
customs  revenue  of  Great  Britain.  This  revenue  is  remark¬ 
ably  steady  in  amount  year  by  year,  averaging  for  the  ten 
years  1871-80,  £20,250,000.  If  there  be  also  a  domestic 
production  of  any  article  taxed  in  the  tariff,  as  Spirits,  a 
corresponding  excise-tax  on  the  portion  produced  at  home, 
which  portion  would  otherwise  be  raised  in  price  by  the 
tariff- tax  to  no  advantage  of  the  revenue,  enables  the  gov¬ 
ernment  to  get  all  that  the  people  are  made  to  pay  in  conse¬ 
quence  of  the  tariff-tax.  The  sole  purpose  of  such  a  scheme 
of  customs  duties  as  this,  which  is  the  only  kind  of  tariff 
economical  science  can  favor  at  all,  is  to  get  revenue  with 
the  least  possible  interference  with  the  ongoings  of  business. 

(2)  There  is  a  tariff  for  “  Protection. ”  The  ruling  aim 
in  this  kind  of  tariff  is  not  at  all  to  obtain  income  for  gov¬ 
ernment,  but  on  the  contrary  by  means  of  taxes  on  foreign 
articles  to  raise  the  prices  of  corresponding  domestic  ones. 
If  the  tariff- taxes  be  so  high  and  complicated  as  to  keep  out 
of  the  country  altogether  the  foreign  articles,  and  so  the 
Tieasury  realize  nothing  at  all  from  them,  so  much  the  more 
“protective”  do  they  become,  and  the  domestic  producers 
have  the  entire  monopoly  of  the  home  market  at  their  own 
prices.  A  Protective  Tariff,  accordingly,  may  be  defined  as 
a  schedule  of  taxes  levied  on  certain  imported  goods  with  an 
eye  to  raise  thereby  the  prices  of  certain  home  commodities . 


FOREIGN  TRADE. 


483 


The  vital  points  of  a  protective  tariff  are  also  three,  but 
these  are  the  exact  opposites  of  the  three  points  of  a  revenue 
tariff,  so  that  it  is  self-contradictory  to  attempt  to  combine 
in  one  tariff-bill  the  two  sets  of  contrary  elements.  In  the 
first  place,  if  a  tariff-rate  is  to  be  protective,  that  is,  to  raise 
the  price  of  home  products,  it  must  be  high,  so  as  either  to 
exclude  altogether  the  corresponding  foreign  products  or  else 
to  make  their  price  by  means  of  the  duty  added  reach  the 
point  at  which  the  home  producers  plan  to  sell  their  own ; 
indeed,  the  higher  the  duties  are  (up  to  the  prohibitory  point) 
the  more  protective  do  they  become,  and  the  less  revenue  is 
derived  from  them  ;  when  the  Bessemer  steel  companies  asked 
in  1870  for  two  cents  a  pound  duty  on  foreign  rails,  they 
called  it  in  terms  “  exceptional  protection,”  and  admitted  that 
they  expected  to  supply  the  market  and  so  government  get 
nothing  in  revenue  ;  and  if  any  one  doubts  that  the  sole  end 
of  protective  duties  as  such  is  to  raise  the  prices  of  certain 
home  products,  he  has  only  to  watch  the  motives  of  those 
who  get  them  put  on  and  their  words  and  actions  when  others 
propose  to  have  them  taken  off,  in  order  to  assure  himself 
of  that  truth.  In  the  second  place,  no  system  of  protective 
duties  can  be  commenced  or  continued  except  by  means  of 
many  persons  who  all  alike  want  their  special  products  pro¬ 
tected,  and  who  are  obliged  to  combine  to  keep  them  protected, 
so  that  protective  duties  on  a  few  things  only  were  rarely  or 
never  found  in  a  tariff ;  so  contrary  are  protective  duties  to 
the  common  sense  of  men,  that  only  strong  combinations 
of  many  interests  can  begin  or  maintain  them,  whence  there 
must  be  many  taxes  if  any  under  this  system  ;  and  by  an 
actual  count  of  them  in  18G8  there  were  found  to  be  in  the 
protective  tariff  of  the  United  States  2,317  distinct  rates  of 
duty  assessed  on  different  articles,  which  was  strikingly  in 
contrast  with  the  revenue  tariff  of  Britain  in  point  of  the 
number  of  things  taxed.  So  needful  is  log-rolling  to  the 
maintenance  of  protection,  that  the  passage  of  the  “  Knit- 
goods  bill”  in  the  summer  of  1882,  for  example,  was  con- 


484 


POLITICAL  ECONOMY. 


i 

tingent  on  the  passage  of  the  famous  “River  and  Harbor 
bill”  of  that  year.  In  the  third  place,  protective  duties  are 
placed  of  course  on  such  foreign  goods  as  are  also  made 
or  grown  at  home,  otherwise  their  plain  purpose  would  be 
thwarted,  while  revenue  duties  select  by  preference  things 
wholly  imported,  which  completes  the  contrast  between  the 
two  kinds  of  tariffs  ;  for  instance,  Tea  and  Coffee  are  the 
best  things  possible  to  tax  in  a  tariff  for  revenue,  because 
they  are  in  universal  consumption,  and,  being  wholly  im¬ 
ported,  taxes  upon  them  do  not  raise  the  prices  of  other 
things,  and  for  this  very  reason  the  two  were  excluded  for 
years  from  any  place  in  our  avowedly  and  almost  exclusively 
protective  tariffs  ;  and  therefore,  the  three  vital  principles  of 
Protection  must  be  conceded  to  be  high  duties ,  on  many  kinds 
of  goods ,  the  counterparts  of  which  are  made  or  groivn  at  home. 

The  best  and  worst  specimen  of  a  protective  tariff  that 
the  world  has  ever  seen  was  in  operation  in  the  United  States 
for  twenty  years  and  more  from  1862.  Its  inner  history  is 
not  yet  known  fully  by  the  public,  but  enough  is  known  to 
expose  the  motives  and  condemn  the  action  of  all  those, 
whether  constituents  or  congressmen,  who,  knowing  what 
they  were  doing,  contributed  to  build  up  gradually  that  mass 
of  incongruities  and  iniquities.  Attempts  more  or  less  suc¬ 
cessful  were  made  at  various  times  and  at  different  points  to 
conceal  from  the  public  the  impulses  that  were  really  behind 
the  provisions  of  this  tariff,  and  even  the  amount  and  the 
mode  of  the  incidence  of  its  taxes ;  many  of  the  most  pro¬ 
tective  duties  were  complex,  combining  upon  the  same  arti¬ 
cle  the  specific  and  ad  valorem  taxes,  as  for  instance,  upon 
Blankets  “  50  cents  per  pound  and  35%  ad  valorem ,”  so  that 
it  was  difficult  or  impossible  for  the  common  reader  of  the 
tariff  to  ascertain  how  much  the  tax  really  was ;  much  of 
the  language  of  the  instrument  was  to  the  last  degree  in¬ 
volved  and  uncertain,  often  leading  to  disputes  and  litigation, 
and  sometimes  covering  up  a  half-hidden  purpose ;  the  hust¬ 
ings  and  rubber  webbings  of  the  shoemakers  were  inadver* 


FOREIGN  TRADE. 


485 


tently  covered  bj7  a  tariff-description  designed  for  another 
purpose,  to  the  consternation  of  that  great  interest,  which 
asked  for  no  “protection”  for  itself,  but  wanted  its  raw 
materials  at  their  natural  price ;  and  the  iron  industry  of 
Pennsylvania  was  bitterly  angry  at  Secretary  Sherman,  who 
construed  a  line  of  the  tariff  relating  to  cotton  ties  used  *'t 
the  South  more  favorably  to  the  planters  than  to  the  iron¬ 
workers,  although  the  latter  were  strongly  protected  at  every 
point  (even  at  this)  in  the  teeth  of  the  interests  of  the  con¬ 
sumers  of  iron.  There  were  fifty  descriptions  of  articles 
of  iron  and  steel  taxed  in  the  tariff,  and  the  average  rate  of 
duty  on  these  in  1879  was  77%  ad  valorem ,  and  this  was 
about  the  average  rate  for  the  twenty  years  ;  but  on  special 
articles  of  prime  necessity,  as  steel  rails,  the  duty  varied 
under  the  rate  of  $28  a  ton  put  on  in  1870  from  85  to  100% 
ad  valorem;  and  the  purpose  of  this  duty  was  clearly  seen 
in  an  average  price  of  domestic  steel  rails  in  this  country 
$24.44  a  ton  higher  than  in  England  for  the  eleven  years 
1870-80,  in  other  words,  87%  of  the  duty  paid  on  the  small 
part  imported  was  added  to  the  average  price  of  the  large 
part  produced  at  home  during  those  eleven  years.  That  this 
enormous  artificial  gain  redounded  wholly  to  the  profit  of  the 
capitalists,  and  not  at  all  to  the  benefit  of  the  laborers,  is 
shown  by  the  census  of  1880,  which  gives  $393  as  the  aver¬ 
age  pay  for  that  year  of  the  persons  employed  in  the  iron 
and  steel  industries  of  the  country.  Only  8.8%  of  the  value 
of  the  products  of  the  Bessemer  steel  industry  in  1881  wen* 
to  the  laborers  employed,  while  66.9%  of  the  same  went  tc 
the  capitalists  as  profits  (Senator  Beck) . 

It  is  impossible  to  tell  exactly  how  much  more  the  people 
of  the  United  States  were  compelled  to  pay  for  their  com¬ 
modities  in  consequence  of  tariff- taxes  than  the  Treasury 
received  as  the  direct  product  of  them  during  1863-82,  but 
an  approximation  can  be  made  within  the  truth  whose  results 
are  fitted  to  startle  the  minds  of  all  good  citizens.  The 
average  annual  tariff- income  for  those  twenty  years  was  ii? 


486 


POLITICAL  ECONOMY. 


i  ■■ 

round  numbers  $158,000,000  ;  but  the  ground-thought  of  the 
tariff  in  all  those  years  was  not  to  get  an  income  for  govern¬ 
ment  but  factitious  prices  for  protected  capitalists,  and  during 
the  last  half  of  the  time  there  were  no  tariff-taxes  on  Tea 
and  Coffee,  which  had  been  before  the  chief  revenue  taxes ; 
if  now  we  may  fairly  suppose,  that  on  the  average  for  each 
1  foreign  article  paying  a  duty  into  the  Treasury  there  were 
4  domestic  articles  raised  each  in  price  as  much  as  the  for¬ 
eign  article  paid  in  duty,  then  it  follows,  that  the  people 
paid  in  each  of  those  years  under  chiefly  protective  tariff- 
taxes  $632,000,000,  or  $12,640,000,000  in  all,  no  penny  of 
which  went  into  the  treasury  of  the  United  States  ;  that  this 
is  a  reasonable  supposition  appears  partly  from  the  known 
proportion  between  imported  and  domestic  as  to  several  lead¬ 
ing  articles,  for  example,  of  steel  rails  in  1880  the  domestic 
was  20  times  the  imported  and  the  people  paid  19  times  more 
under  the  duty  than  the  Treasury  got,  —  on  woollen  blankets 
in  1881  the  Treasury  took  in  less  than  $2,000  while  the  peo¬ 
ple  paid  in  the  extra  price  of  blankets  more  than  1,000  times 
that  sum  that  year,  —  and  on  iron  goods  of  all  kinds  we  have 
seen  that  the  average  duty  was  about  77%  while  the  vast 
bulk  of  the  iron  consumed  is  known  to  be  of  domestic  pro¬ 
duction  ;  and  that  this  is  a  reasonable  supposition  appears 
further,  if  we  look  at  the  annual  average  amount  of  domestic 
manufactured  goods, — the  census  of  1870  gave  $4,232,000,- 
000  as  the  value  of  home  manufactures  for  that  year,  which 
we  may  fairly  take  as  the  average  of  the  twent}7  years  undei 
consideration,  and  if  we  throw  off  one-third  of  those  as  not 
affected  b}7  the  tariff  at  all,  and  consider  that  the  rest  were 
only  raised  in  price  22%,  which  is  one-half  of  the  average 
late  of  duty  on  dutiable  goods,  then  almost  precisely  the 
same  results  will  follow  as  before,  namely,  an  annual  aver¬ 
age  of  $632,000,000  paid  by  the  people  under  the  protective 
tariff  no  cent  of  which  reaches  the  national  treasury.  An 
acknowledged  statistical  expert,  J.  S.  Moore,  calculated  from 
data  similar  to  our  own,  that  the  people  paid  $1,000,000,000 


FOREIGN  TRADE. 


487 


m  1882  extra  to  the  sum  reaching  the  Treasury  under  pro¬ 
tective  tariff  taxes.  The  average  rate  of  duty  on  dutiable 
goods  in  1880  was  officially  reckoned  at  44%.  We  see,  then, 
clearly  the  methods  by  which  Protection  reaches  its  ends  ;  and 
we  cannot  but  conclude,  that  these  methods  issue  in  unjust 
burdens  on  the  masses  of  the  people. 

3.  We  will  now  look  in  order  at  some  of  the  chief  Fal¬ 
lacies  by  which  this  wretched  system  has  gained  and  still 
keeps  its  hold  on  the  legislation  of  this  country.  The  system 
is  as  full  of  deceit  as  an  egg  is  full  of  meat.  The  so-called 
arguments,  by  which  some  men  seek  to  support  it,  are  every 
one  of  them  logically  fallacious ;  to  undertake  to  give 
economical  reasons  for  suppressing  by  law  a  profitable  trade 
involves  a  contradiction  in  terms  ;  a  profitable  trade  may 
properly  be  suppressed  on  grounds  of  Morals,  Health,  or 
Revenue,  provided  a  clear  contrariety  to  those  can  be  shown, 
but  reasons  from  economics  are  precluded  because  the  only 
ground  for  trade  at  all  is  the  gains  of  it ;  and  in  the  following 
paragraphs  we  shall  expose  not  only  some  of  the  logical 
fallacies,  but  also  other  falsities  and  contradictions. 

(a)  One  of  the  main  fallacies  of  Protection  is  the  old  one 
that  pervaded  the  Mercantile  System,  namely,  that  a  country 
may  continue  to  sell  to  other  countries  while  putting  legal 
obstacles  in  the  way  of  buying  from  those  countries.  Tee 
inmost  nature  of  trade  explodes  this  fallacy.  The  only  rea¬ 
son  for  selling  any  thing  is  to  get  in  return  that  for  which  u 
is  sold,  which  is  always  more  desired  and  furnishes  to  the 
seller  the  only  motive  for  the  trade;  but  Protection  puts 
large  obstacles  in  the  way  of  one’s  getting  his  pay  back, 
which  is  only  another  way  of  saying  that  it  puts  large  obsta  - 
cles  in  the  way  of  his  selling  at  all,  since  foreign  goods  are 
the  market  in  which  domestic  goods  find  their  vent,  and 
restrictions  on  the  taking  in  of  foreign  goods  are  in  effect 
restrictions  on  the  sending  out  of  domestic  goods.  A  market 
for  products  is  products  in  market.  Goods  exchange  against 
each  other  in  the  markets  of  the  world,  even  more  than  in  an^ 


488 


POLITICAL  ECONOMY. 


I  ’  i 

one  domestic  market ;  because,  small  as  is  the  part  played 
by  money  in  any  one  country  as  mediating  its  exchanges, 
still  smaller  is  that  part  in  international  exchanges,  since 
bills  of  exchange  drawn  on  cargoes  both  ways  offset  each 
other  leaving  relatively  small  balances  to  be  settled  in  money. 
Exports  go  forth  to  seek  imports,  and  to  pay  for  them  ;  but 
if  these  be  lessened,  as  is  both  the  purpose  and  the  effect  of 
protective  duties,  then  the  exports  are  lessened  of  necessity. 
If  a  nation  will  not  buy,  then,  so  far  forth,  it  cannot  sell, 
because  buying  and  selling  are  inseparable  parts  of  one  whole. 
Just  so  far  as  a  protective  tariff  keeps  foreign  goods  out , 
which  would  otherwise  come  in,  so  far  it  keeps  domestic 
goods  m,  which  would  otherwise  go  out  to  a  profit.  Protec¬ 
tion,  therefore,  is  a  two-edged  sword  smiting  right  and  left, 
compelling  people  to  pay  more  than  is  just  for  much  that 
they  bu3T  and  to  sell  for  less  than  is  just  much  that  they  sell. 
To  the  direct  losses  of  a  people  plundered  by  “  protection  ” 
in  the  values  of  their  supplies  made  artificially  high,  must  be 
charged  their  indirect  losses  in  the  values  of  salables  made 
artificially  low,  —  each  in  the  case  of  the  United  States  a 
monstrous  sum.  Then  add  to  these  two  columns  the  derange¬ 
ments,  the  curtailment  of  natural  resources,  the  deviations  of 
trade  from  its  freely  chosen  channels,  the  loss  of  markets 
hard  to  regain,  marches  stolen  on  a  country  by  wiser  nations, 
the  ill-will  begotten  of  restrictions,  and  the  liability  to  retali¬ 
ations  in  kind,  —  all  incalculable  and  enormous. 

( b )  A  second  chief  fallacy  of  Protection  is  the  common 
representation  of  tariff-taxes  as  if  they  were  somehow  or 
other  a  positively  productive  agent,  a  spur  to  the  progress  of 
industry.  For  example,  Senator  Frye  of  Maine  said  from 
his  place  in  1882  :  uIf  there  ivere  no  public  debt ,  no  interest  to 
•pay,  no  pension-list ,  710  army  or  navy  to  support ,  I  should  still 
oppose  ‘  tariff  for  revenue  only  ’  and  favor  protective  duties .” 
That  is  the  same  as  to  say,  that  a  protective  tariff  is  a  good 
thing  of  itself  without  reference  to  revenue,  something  worth 
having  for  its  own  sake.  A  moment's  attention  to  the  inmost 


FOREIGN  TRADE. 


489 


nature  of  a  tariff  will  set  all  this  in  its  true  light.  One  may 
read  a  tariff-bill  from  the  beginning  to  the  end,  or  begin  at  the 
end  and  read  backwards,  or  begin  at  the  middle  and  read 
both  ways,  and  all  he  will  find  is  a  series  of  imperative 
demands  to  pay  something ;  and  if  it  be  a  protective  tariff, 
he  will  find  heavy  demands,  frequently  a  sum  to  be  paid 
equal  to  the  value  of  an  article  before  the  purchaser  can  touch 
it,  and  what  is  much  worse,  demands  so  cunningly  contrived, 
that  they  stubbornly  re-appear  in  the  enhanced  prices  of 
corresponding  goods  which  never  smelled  the  ocean  salt.  A 
demand  made  and  met  on  a  Boston  wharf  instantly  re-issues 
in  other  demands  made  and  met  a  thousand  miles  from  the 
seaboard  :  a  duty  on  woollen  cloth  demanded  at  the  seaports 
may  double  the  price  of  every  suit  of  clothes  vended  in  the 
foot-hills  of  the  Rocky  Mountains,  though  every  ell  be  domes¬ 
tic  cloth  out  of  which  these  are  made.  The  duty  of  122% 
demanded  on  bunting  imported  looks  comparatively  innocent, 
but  the  deviltry  of  it  is  revealed  in  the  effect  on  the  price 
demanded  for  every  yard  of  domestic  bunting,  which  extra 
price  was  the  only  motive  for  putting  the  duty  on  the  foreign, 
and  the  duty  demanded  duplicates  demands  everywhere  on 
each  patriotic  citizen  who  wishes  to  flaunt  the  flag  of  his 
country.  The  point  is,  the  protective  tariff  takes  out  of  the 
people  not  only  at  the  wharves  but  also  over  every  counter 
at  which  protected  goods  are  sold,  and  renders  nothing  back , 
so  that  its  symbol  is  not  the  engine  furnishing  productive 
power,  but  rather  the  exhaust-pipe  drawing  off  and  dissipat¬ 
ing  the  power. 

If  it  be  said,  that  a  part  of  what  is  thus  taken  out  from  the 
masses  of  the  people  passes  over  in  artificial  prices  into  the 
pockets  of  the  manipulators  of  “protection,”  that  is  true; 
but  what  sort  of  justice  is  it  to  take  money  by  law  in  driblets 
out  of  the  pockets  of  millions  to  pour  it  in  floods  into  the 
pockets  of  hundreds  ?  To  say  nothing  now  of  the  wrong  of 
that,  where  is  the  general  gain  in  it?  Is  the  nation  enriched 
thereby?  Is  there  any  creative  power  in  all  that?  Is  the 


POLITICAL  ECONOMY. 


m 

whole  any  larger  than  before  ?  Can  an  aggregate  be  increased 
by  mere  tricks  of  distribution?  Less  at  many  points,  more 
at  few  points,  and  waste  and  ill-will  and  loss  of  markets 
along  the  whole  line,  — that  is  the  true  story.  Waves  rise 
on  the  ocean  under  the  impulse  of  winds,  but  there  are  always 
corresponding  hollows  behind  them,  and  the  general  level  oi 
the  ocean  is  not  raised  however  high  the  waves  rise. 

(e)  Just  before  the  congressional  elections  in  the  late 
autumn  of  1882,  the  protectionists  circulated  a  pamphlet 
written  by  Edward  Young  and  entitled,  “  The  True  American 
Policy  —  Protect  Labor  ;  ’  ’  and  this  title  covers  up  perhaps  the 
commonest  of  the  fallacies  and  falsities  of  Protection.  One 
would  think  fiom  this  pamphlet,  and  from  the  usual  talk  of 
men  like-minded  with  its  author,  that  the  tariff  “  protected” 
native  laborers  in  the  same  way  as  domestic  goods ,  or  at  least 
in  some  way  quite  obvious  and  certain.  But  the  truth  is, 
there  was  never  any  duty  on  foreign  laborers  at  all ;  these 
come  in  in  immense  numbers  every  year  to  sell  their  services 
alongside  the  native  laborers  ;  there  is,  and  always  has  been, 
in  this  country,  free  trade  in  labor ,  and  this  is  just  as  it 
ought  to  be ;  a  miserable  treaty  stipulation  with  China 
restricts  just  at  present  the  immigration  of  laborers  from 
that  countiy,  but  is  scarcely  even  a  temporary  exception  to 
the  general  rule  of  our  national  policy;  in  1881,  there  were 
249,572  immigrants  hither  from  Germany  alone  ;  some  of  the 
most  highly  protected  manufacturers,  for  instance,  of  glass 
in  Berkshire  County,  have  been  accustomed  to  go  to  Europe 
themselves  from  time  to  time  to  hire  skilled  laborers  there, 
who  net  no  obstacles  as  to  their  persons  at  the  custom-houses 
on  their  arrival ;  and  consequently,  the  implication  that 
laborers  are  protected  in  the  same  way  that  goods  are,  is 
adapted  and  designed  to  deceive  both  the  laborers  themselves 
and  all  others  who  do  not  stop  to  think  and  to  inquire  what 
the  facts  are.  Protective  duties  are  put  on  certain  classes  of 
foreign  goods  to  keep  them  out  of  the  country,  or  at  least  to 
raise  their  price  to  the  point  at  which  the  home  manufacturer 


FOREIGN  TRADE. 


491 


is  desirous  of  selling  his  own  goods  ;  no  corresponding  efforts 
were  ever  made  to  make  difficult  the  introduction  of  foreign 
laborers,  whose  competition  with  native  and  naturalized 
laborers  depresses  so  far  forth  the  rates  of  wages,  and  these 
receivers  of  lessened  wages  are  compelled  to  buy  protected 
goods  at  enhanced  prices,  and  then  are  mocked  by  the  pre¬ 
tence  that  somehow  laborers  are  protected  by  the  tariff ;  and 
thus  insult  is  added  to  injury,  and  a  deserving  class  of  men 
vho  have  little  leisure  to  look  into  the  intricacies  of  a  com¬ 
plex  taxation  are  deceived  as  to  their  own  interests,  since 
they  sell  their  services  in  an  absolutely  free  market  and  buy 
their  supplies  in  a  strongly  restricted  market.  If  laborers 
are  not  protected  as  goods  are,  and  they  are  not,  no  one  has 
ever  been  able  to  show  how  they  are  “protected”  at  all; 
and  the  fact  remains,  that  the  capitalists  who  get  the  duties 
put  on  for  their  own  benefit  arc  the  only  persons,  if  anybody, 
who  get  any  benefit  from  them. 

(d)  It  is  frequently  alleged,  that  protective  duties  tend  to 
raise  the  wages  of  laborers  in  the  protective  countries,  and 
the  relatively  high  rates  of  wages  in  the  United  States  while 
under  protective  duties  are  often  appealed  to  as  confirming 
the  assertion.  Here  is  a  gross  and  harmful  fallacy.  It  is 
all  the  more  harmful  because  the  victims  of  it,  who  are  the 
laborers  themselves,  are  also  the  victims  of  the  policy  itself 
sought  to  be  upheld  by  it.  So  far  as  the  alleged  proof 
drawn  from  the  United  States  is  concerned,  it  is  an  instance 
of  the  fallacy  called  in  Logic  post  hoc  ergo  propter  hoc,  that 
is,  the  fallacy  of  arguing  because  one  thing  follows  after 
another  that  therefore  the  latter  is  the  cause  of  the  foi- 
mer ;  an  instance  of  this  fallacy  would  be,  the  day  follows 
uniform^  after  the  night  and  therefore  the  night  is  the  cause 
of  the  day  ;  and  just  so,  high  wages  are  paid  after  protective 
duties  are  put  on  and  therefore  the  duties  cause  the  wages. 
This  form  of  argumentation  is  always  fallacious,  unless  a 
natural  tie  of  connection  can  be  shown  between  the  prece¬ 
dent  and  the  consequent,  and  unless  it  can  be  probably  shown 


492 


POLITICAL  ECONOMY. 


that  nothing  but  the  precedent  could  cause  the  consequent . 
In  this  case  the  reasoning  is  wholly  bad,  because  no  tendenc}” 
whatever  can  be  shown  from  the  nature  and  operation  of  the 
precedent,  “  protective  duties,”  towards  the  bringing  in  of 
the  consequent,  “high  wages;”  and  because  obvious  and 
sufficient  reasons  adapted  in  their  very  nature  to  secure  high 
wages  can  be  shown  to  have  preceded  and  caused  them. 

We  will  first  demonstrate,  that  protective  taxes  lessen  of 
necessity  what  would  otherwise  be  the  rates  of  wages  pre¬ 
vailing  in  the  protected  country,  and  then  give  some  facts 
and  figures  confirming  the  proof  and  exposing  the  falsities 
of  the  opposite  doctrine. 

The  original  trade  interfered  wdth  by  protective  taxes  is 
always  profitable,  otherwise  it  would  not  be  carried  on,  and 
only  asks  to  be  let  alone  to  maintain  itself  as  profitable. 
There  is  a  natural  market  for  the  things  a  nation  has  to  sell 
in  the  foreign  things  offered  against  them ;  now,  when  this 
profitable  interchange  is  going  forward,  Protection  steps  in 
and  cuts  off  in  part  or  in  whole  this  natural  market,  and 
compels  the  home  things  to  be  sold  in  a  restricted  and  less 
profitable  market,  by  putting  heavy  taxes  on  the  intro¬ 
duction  of  the  things  seeking  these  home  products  in  ex¬ 
change  ;  the  reason  always  given  for  thus  depressing  a 
profitable  market  is,  that  certain  other  home  things  presently 
unprofitable  to  make  or  grow  may  be  encouraged  and  fostered 
by  this  new  market  made  artificially  high  to  those  who  buy 
the  protected  things,  but  also  at  the  same  time  and  by  the 
same  cause  made  artificially  low  to  those  who  formerly  sold 
their  goods  abroad ;  the  advocates  of  protection  do  not 
claim  that  branches  of  business  which  would  otherwise  be 
profitable  and  self-supporting  should  be  protected,  but  only 
the  weak  and  less  profitable  kinds  ;  let  it  be  noted,  that 
“protected”  branches  of  manufacture  are  by  supposition 
and  confession  unprofitable ,  otherwise  it  would  be  idle  to  try 
to  persuade  the  people  to  be  taxed  to  help  them  along ;  and 
so  to  bolster  ip  these,  protective  taxes  virtually  destroy 


FOREIGN  TRADE. 


493 


other  branches  of  industry,  which  only  ask  that  their  natu¬ 
ral  market  shall  be  let  alone  in  order  to  maintain  an  inde¬ 
pendent  and  profitable  existence.  Is  it  possible  on  any 
grounds  to  characterize  in  terms  of  respect  so  short-sighted 
and  miserable  a  policy  as  this,  and  especially  on  the  alleged 
ground  of  higher  wages  to  follow  it?  Why,  Protection 
starts  by  withdrawing  capital  and  labor  from  profitable  em¬ 
ployments,  and  putting  them  into  what  is  confessed  to  be 
unprofitable  employments ;  and  how  can  that  process  raise 
wages,  or  even  keep  them  up  to  the  old  point?  Protection 
'proceeds  to  destroy  a  market  for  the  exportables  of  a  country 
by  putting  barriers  in  the  way  of  taking  in  importables  to 
pay  for  them ;  and  how  can  this  process  of  stabbing  home 
products  which  want  to  go  out  for  a  profit  raise  wages,  or 
even  keep  them  up  to  the  old  point?  Protection  achieves 
high  prices  for  most  of  the  things  the  laborers  have  to  buy, 
since  its  very  object  is  to  make  them  scarce  and  dear  by  cut¬ 
ting  off  foreign  competition  in  them  ;  and  pray  how  can  this 
process  lift  the  purchasing-power  of  wages,  or  even  keep  it 
up  to  the  old  point? 

On  the  contrary,  Free  Trade  tends  powerfully  to  raise 
both  the  nominal  rates  and  the  purchasing-power  of  wages 
in  any  country  in  which  Protection  had  found  place,  let  us 
say,  the  United  States ;  because  under  free  trade  all  natural 
and  profitable  home  products  find  their  natural  and  profitable 
Markets  ;  because  the  varied  objects  of  use  and  elegance 
offered  to  our  desires  by  international  commerce  stimulate 
labor  and  capital  to  create  the  home  products  with  which  to 
1  uy  them  ;  because  the  only  possible  way  for  us  to  obtain  the 
results  of  foreign  toil,  is  to  offer  in  exchange  the  results  of 
domestic  toil ;  because  the  more  we  buy  of  foreigners,  the 
more  home  labor  must  be  employed  at  those  points  at  which 
we  have  the  greatest  advantage  over  those  foreigners,  and 
hence  the  most  profitable  points  possible,  to  make  or  grow  the 
goods  with  which  to  pay  for  those  foreign  goods  ;  because 
demand  for  labor  is  always  strongest  when  exchanges  are 


494 


POLITICAL  ECONOMY. 


most  constant  and  natural  and  profitable,  and  wages  are 
always  highest  (other  things  being  equal)  when  the  demand 
for  labor  is  strongest ;  because  a  world  market  is  ever  better 
than  a  one  country  market ;  because  just  so  far  as  tariff- 
taxes  keep  foreign  products  out,  they  deprive  the  cheapest 
domestic  products  of  their  dearest  market,  and  thus  discour 
age  domestic  capital  and  labor  and  of  course  lessen  their  re¬ 
wards ;  because  foreign  products  are  always  worth  more  at 
home  than  the  domestic  products  which  purchased  them,  and 
a  part  of  this  excess  always  goes  in  wages  to  laborers  making 
more  domestic  products  of  the  same  sort ;  because  the  neces¬ 
saries  of  life  are  always  cheap  under  free  trade,  and  a  given 
rate  of  wages  goes  very  far  in  buying,  which  is  additional  to 
laborers  to  the  demonstrated  gain  in  the  rates  of  wages  ;  and 
because  as  a  matter  of  actual  experience,  a  general  rise  of 
wages  never  failed  to  accompan}"  the  adoption  of  a  free 
commercial  policy  by  a  nation  whose  trade  was  previously 
restricted. 

It  may  be  admitted,  that  protective  tariff-taxes  put  on  for 
its  especial  benefit  may  stimulate  for  a  while  a  certain  branch 
of  manufacture,  may  concentrate  capital  in  it,  may  call 
laborers  into  it,  and  may  perhaps  increase  for  a  time  the 
previous  wages  of  those  laborers  ;  but  the  inevitable  competi¬ 
tion  will  very  speedily  reduce  wages  in  that  department  to 
about  the  average  level  of  other  departments  in  that  region, 
and  protected  manufacturers  were  never  known  to  pay  wages 
one  iota  higher  than  the  lowest  sum  at  which  competent 
laborers  can  be  hired.  They  are  not  at  all  to  be  blamed  for 
this,  and  they  themselves  are  often  subjected  to  sharp  com¬ 
petition  in  production  by  other  manufacturers  eager  to  avail 
themselves  of  the  new  inducements,  the  business  is  shortly 
overdone,  chills  succeed  to  fever,  the  market  is  now  restrict¬ 
ed  and  of  course  easily  clogged,  some  of  the  mills  stop  and 
the  hands  are  discharged,  the  boasted  wages  disappear,  some 
of  the  mills  combine  to  work  short  time  and  so  lessen  pro¬ 
duction  to  ease  the  market  and  the  wages  received  must  be 


FOREIGN  TRADE. 


495 


averaged  down  to  the  nine  months’  work  and  the  three 
months’  idleness.  The  damning  mischief  of  the  system  is 
the  market  made  short  by  law ;  promised  wages  have  tc  be 
reduced  as  the  goods  become  sluggish  ;  the  workmen  do  not 
clearly  see  the  grounds  of  this,  as  they  have  been  over  and 
over  assured  that  Protection  makes  high  wages  ;  they  com¬ 
bine  and  “  strike  ”  to  resist  the  reduction  ;  owners  are  often 
glad  to  have  them  do  this,  so  that  the  market  can  get 
cleared ;  but  where  are  now  the  wages,  and  who  feeds  the 
hungry  mouths,  and  what  assurance  can  be  had  that  when 
the  work  begins  again  they  can  get  even  the  old  rate  of  pay  ? 
Strikes  and  Protection  naturally  go  together,  because  low  and 
broken  wages  naturally  go  with  protection.  It  is  a  note¬ 
worthy  fact  in  the  United  States,  that  more  strikes  have 
happened  in  the  protected  industries  than  in  others,  and 
that  the  worst  strikes  have  happened  in  the  most  highly 
protected  industries.  The  spring  and  summer  of  1882  wit¬ 
nessed  a  combination  of  laborers  stretching  half  across  the 
continent,  to  resist  a  reduction  of  wages  in  the  iron  and 
steel  industries,  whose  average  protection  was  77%,  and 
whose  success  in  holding  out  against  the  strike  and  bring¬ 
ing  the  workmen  back  after  mouths  of  idleness  on  terms 
dictated  by  capital  and  not  by  labor  is  the  best  commentary 
on  the  unnatural  alliance  between  Protection  and  Labor. 

John  Bright  is  a  good  authority  for  the  statement,  :bat 
English  wages  began  to  rise  with  the  removal  of  the  Corn- 
laws  in  1846,  and  steadily  rose  on  the  whole  as  other  restric¬ 
tive  features  of  their  tariff  were  repealed,  till  1860,  when  the 
Commercial  treaty7  with  France  was  made  ;  and  rose  slowly 
but  steadily  after  and  byT  means  of  that  treaty,  till  on  the 
whole  average  they  were  more  than  one-quarter,  and  in  many 
departments  fully  one-half,  greater  than  when  the  free  era 
began  ;  and  this  is  no  instance  of  post  hoc  ergo  propter  hoc 
reasoning,  because  no  other  cause  of  this  rise  could  be 
reasonably  alleged,  and  the  hours  of  labor  and  the  prices 
of  food  and  other  necessaries  had  been  much  reduced  in 


496 


POLITICAL  ECONOMY. 


the  mean  time.  Since  Bright’s  testimony  was  given,  the 
upward  movement  of  English  wages  has  progressed,  until 
in  the  year  of  grace  1882,  reliable  statistics  make  them  not 
only  by  all  odds  the  highest  in  Europe  but  also  as  compared 
with  Germany,  for  example,  more  than  100%  higher.  An 
official  document  published  in  the  last-named  year  by  the 
United  States  makes  it  nearly  certain  that  English  wages 
in  textile  manufactures  are  higher  than  the  correspor.  ding 
wages  in  the  United  States.  C.  D.  Wright,  the  officii 
statistician  of  Massachusetts,  had  previously  stated  as  the 
result  of  data  gathered  by  him,  that  the  wages  of  English 
weavers  were  higher  than  those  of  American  weavers  ;  and 
Consul  Shaw  more  than  confirms  this  from  independent  data 
in  the  document  just  alluded  to.  James  Thornly  of  Man¬ 
chester  came  to  the  United  States  in  1879  as  the  represen¬ 
tative  of  a  journal  devoted  to  textile  manufactures,  and 
carefully  worked  out  the  data  for  a  comparison  of  wages 
in  the  two  countries.  Taking  four  English  districts  and 
four  American,  and  comparing  widths,  reeds,  picks,  lengths 
and  weights  of  products,  so  as  to  be  sure  that  he  is  compar¬ 
ing  identical  services  in  the  two,  Thornly  finds  that  the  Eng¬ 
lish  weaver  is  paid  an  average  of  26.94  cents  to  20.70  cents 
paid  the  American  weaver,  which  is  30%  more.  Thornty 
concludes  that,  in  textiles,  American  wages  are  quite  as 
low  as  English,  and  that  the  disadvantages  of  American 
manufacturers  (if  any)  arise  from  u  the  weight  of  taxation , 
dearness  of  coal ,  and  the  great  expense  of  mills  and  machine¬ 
ry .”  The  same  nominal  wages  in  the  hands  of  an  English 
operative  will  buy  far  more  than  in  the  hands  of  an  Ameri¬ 
can,  for  the  reason  that  a  free  trade  country  has  commodi¬ 
ties  cheap  and  a  protectionist  country  has  them  dear.  Mr. 
Wright  has  officially  shown,  that,  while  nominal  wages  rose 
in  Massachusetts  in  1860-81  31.2%,  the  prices  of  necessa¬ 
ries  rose  in  the  same  time  41.3%  ;  so  that,  after  twenty  3rears 
of  “protection,”  the  laborer  ?ould  only  realize  in  comforts 
90%  of  what  he  had  before  ! 


FOREIGN  TRADE. 


497 


The  late  Edward  Harris,  the  most  successful  manufacturer 
of  his  generation,  told  the  writer  some  years  ago  as  the 
result  of  his  experience  in  cottons  and  woollens,  that  the 
element  of  wages  was  about  16%  of  the  cost  of  the  fabrics, 
and  the  element  of  materials  60%.  The  census  of  1870 
strikingly  corroborated  this  statement.  So  did  the  census 
of  1880.  According  to  the  latter,  the  woollen  products  of 
that  year  were  $267,699,504,  of  which  sum  wages  paid  were 
18%,  and  materials  used  were  63%.  In  the  silk  industry  of 
the  same  year,  wages  were  22%  of  the  value  of  the  product, 
going  to  34,000  operatives,  two-thirds  of  whom  were  women 
and  girls.  In  a  general  way  it  may  be  said,  that  wages  in 
the  manufacturing  and  mechanical  and  mining  industries  of 
this  country  constitute  one-fifth  of  the  value  of  the  annual 
product,  while  the  materials  used  in  the  same  are  tliree-fifths 
of  that  value;  materials,  then,  are  an  element  in  the  cost 
of  manufacturing  three  times  as  significant  as  wages  ;  free 
trade  would  surely  increase  the  element  of  wages,  and  just 
as  surely  lessen  the  element  of  materials,  in  the  cost  of  manu¬ 
facturing,  but  cheap  materials  are  vastly  more  important 
than  cheap  wages;  suppose  wages  be  20%  greater  in  this 
country  than  in  England,  and  the  efficiency  of  labor  the 
same,  then  the  disadvantage  of  our  manufacturers  on  the 
score  of  wages  paid  is  only  4%  of  the  whole  cost  of  manu¬ 
facture,  a  bare  trifle  ;  but  suppose  materials  to  be  enhanced 
in  price  by  protection  40%  on  the  average,  then  the  dis¬ 
advantages  of  our  manufacturers  on  the  score  of  dearer 
materials  is  24%  of  the  value  of  the  product,  almost  one- 
quarter.  The  disadvantages  of  American  manufacturers,  so 
far  as  the  costs  of  manufacture  are  concerned,  are  not  in  the 
rates  of  wages  paid,  but  in  the  factitious  prices  (caused  by 
Protection)  of  all  materials  used,  and  of  all  machinery, 
buildings  and  repairs.  The  instant  repeal  of  all  protective 
duties  would  put  our  manufacturers  in  a  better  posture  at 
once,  though  they  would  have  to  pay  for  some  time  the  fine 
and  penalty  of  a  false  system  in  the  interest  on  their  build* 


408 


POLITICAL  ECONOMY. 


ings  and  machinery,  because  materials  (a  chief  factor  in  their 
expenses)  would  be  instantly  cheapened,  and  especially  be¬ 
cause  foreign  markets  would  be  gradually  opened  to  them. 

The  distinction  must  never  be  lost  sight  of  in  this  discus¬ 
sion  between  Rate  of  Wages  and  Cost  of  Labor.  The  first 
may  be  high  and  the  second  low  at  the  same  moment.  Cost 
of  labor  in  manufactured  products  in  the  United  States  is 
low  relatively  to  that  in  foreign  countries,  being  on  the  aver* 
age  one-fifth  of  the  value  of  the  products,  while  the  cost  of 
raw  materials  is  high  relatively  to  that  in  other  countries, 
being  on  the  whole  three-fifths  of  the  value  of  the  prod¬ 
ucts  ;  by  the  census  of  1880,  wages  in  the  petroleum  manu¬ 
facture  were  $4,381,572,  raw  materials  were  $34,999,101, 
and  products  were  $43,705,218,  that  is,  wages  were  10%  and 
materials  80%  of  the  products,  or  throwing  out  the  crude 
petroleum,  $10,340,581,  materials  were  43%  ;  to  account  for 
this  lower  cost  of  labor,  we  have  (1)  the  greater  efficiency 
of  labor  here,  owing  to  stronger  and  higher  motives  common 
to  the  laborers,  to  a  more  energetic  tone  of  things  gen  /ally, 
and  to  a  more  universal  use  of  labor-saving  appliances ; 
(2)  fewer  persons  are  employed  here  than  abroad  in  establish¬ 
ments  doing  equal  work,  because  here  are  less  supernumera¬ 
ries  and  fewer  grades  in  authority  and  less  persons  pensioned 
by  the  establishment,  each  laborer  here  being  put  on  his  or 
her  full  power  of  work ;  (3)  laborers  are  more  temperate 
and  steady  here,  and  are  more  uniformly  ready  to  begin 
their  work  on  Monday  morning,  while  the  Sunday’s  debauch 
belates  and  enfeebles  many  foreign  laborers ;  and  (4)  more 
'Lours  per  week  are  given  to  labor  here  than  abroad,  British 
hours  being  54  and  ours  60  to  66  ;  and  to  account  for 
the  high  relative  cost  of  materials,  we  need  only  refer  to  the 
high  protective  tariff,  whose  design  it  is  to  raise  their  price. 
The  endless  opportunities  of  Agriculture  in  this  land  are 
the  steady  force  that  lifts  on  wages  and  keeps  them  to  their 
actual  height.  Cheap  and  fertile  farms  to  be  had  almost 
for  the  asking  are  open  to  all  laborers  and  all  immigrants, 


FOREIGN  TRADE. 


499 


who  dislike  manufactures  or  are  discontented  with  their 
wages  in  any  other  line  of  work,  and  this  on  the  one  hand 
reduces  the  Supply  of  laborers  in  the  mills  and  factories  and 
on  the  other  keeps  up  the  rates  of  wages  there  to  a  point 
marked  by  the  average  success  of  labor  in  agriculture.  If 
protective  tariff-taxes  were  abolished,  which  compel  the 
farmers  to  pay  more  than  is  right  for  most  wrhicli  they  buy 
and  to  sell  for  less  than  is  right  most  which  they  sell,  then 
agriculture  would  be  far  more  profitable  than  it  is,  and 
then  also  wages  in  all  departments  would  tend  to  rise  to  the 
full  height  marked  by  a  free  and  prosperous  agriculture,  —  a 
stroke  that  would  enormously  benefit  all  the  people  of  the 
United  States. 

If  there  were  any  thing  solid  in  the  allegation  that  “  pro¬ 
tection  ”  raises  rates  of  wrages,  then  it  ought  to  follow  that 
wages  are  higher  in  protected  industries  than  in  others.  But 
they  are  not.  Just  the  reverse  is  often  witnessed.  Said  the 
Albany  Evening  Journal  in  February,  1883  :  “  Bricklayers 
ancl  carpenters  get  better  pay  than  weavers  and  miners.  We 
all  know  that.  Yet  the  former  are  not  mentioned  in  any  tariff 
scheme ,  and  the  others  are  alleged  to  get  all  the  benefits  of 
protection.  We  pay  our  printers  higher  wages  than  a  like 
number  of  operatives  in  the  Harmony  Mills  of  Cohoes  ever 
got.  Yet  type-setting  is  not  under  the  'shadow  of  protection'’ s 
Chinese  wall ,  and  spinning  is .” 

(e)  Another  common  fallacy  of  Protection  is  that  called 
by  the  logicians  the  fallacy  of  composition.  It  is  remarkable, 
that  in  nearly  all  protectionist  arguments,  the  eye  of  the 
reasoner  is  directed  wholly  to  some  one  protected  industry 
and  not  at  all  to  the  system  as  a  whole,  and  yet  the  conclu¬ 
sion  sought  to  be  drawn  is  meant  to  apply  to  the  whole  sys¬ 
tem.  An  example  of  this  fallacy  would  be :  There  are  good 
reasons  for  thinking  that  one  of  the  12  jurors  is  biassed, 
therefore,  it  is  probable  that  all  the  jurors  are  biassed.  An 
artificial  market  advanced  50  f0  for  all  the  products  of  a 
woollen  factory  by  means  of  a  protective  tariff-tax  would 


500 


POLITICAL  ECONOMY. 


f 

seem,  so  far  forth,  to  be  a  very  good  thing  for  the  woollen 
factory  owners,  and  the  point  would  seem  plausible  that, 
were  the  tariff- tax  removed,  very  considerable  harm  would 
come  to  those  owners  ;  but  all  that  does  not  begin  to  prove 
that  protective  tariff-taxes  are  a  benefit  even  to  all  factory 
owners,  still  less  to  the  people  at  large,  nor  does  it  begin  to 
prove  that  the  removal  of  all  such  taxes  would  be  harmful 
even  to  factory  owners,  still  less  to  the  people  ;  extend  the 
view,  first,  to  the  consumers  of  those  woollen  fabrics,  who 
r  re  obliged  to  pay  one-third  more  than  is  natural,  and  whose 
loss  completely  balances  the  gain  of  the  factory,  —  no  bene¬ 
fit  on  the  whole  ;  extend  the  view,  second,  to  all  the  protec¬ 
tive  tariff-taxes  then  and  there  levied,  many  of  the  enhanced 
prices  caused  by  which  these  very  factory  owners  have  to 
pajr  on  their  materials  and  machinery  and  buildings,  and  it 
is  quite  likely  that  they  pay  more  than  they  get  bade,  and 
very  probable  that  the  abolition  of  all  these  taxes  would  be 
a  great  relief  and  permanent  benefit  to  them  even  as  factory 
owners  and  still  more  as  citizens ;  and  extend  the  view, 
third,  to  all  those  home  farmers  and  manufacturers  whose 
freely  chosen  market  was  cut  off  by  all  those  restrictive 
tariff-taxes,  whose  losses  cannot  be  made  up  to  them  from 
any  quarter,  and  the  aspect  of  the  whole  matter  is  very 
different  from  what  it  was  at  first,  the  probability  becomes 
a  certainty  that  the  repeal  of  the  taxes  would  be  a  vast 
national  gain,  and  the  fallacy  of  composition  in  this  case 
becomes  obvious. 

How  freedom  of  trade  recovers  the  foreign  market  to  home 
producers  is  beautifully  shown  in  the  experience  of  Great 
Britain.  In  1849,  when  the  corn-laws  disappeared,  British 
exports  were  only  $10.93  per  capita;  in  1859,  they  had  risen 
to  $22.11  per  capita,  an  increase  of  105%  in  ten  years  ;  in 
1869,  the  remissions  of  import-duties  being  of  course  fewer 
for  that  decade,  the  exports  per  person  rose  to  $29.79  ;  and 
in  1880,  they  were  $32.35.  The  exports  of  the  United  States 
have  been  of  ccirse  less  than  they  normally  would  be  pet 


FOREIGN  TRADE. 


501 


capita ,  because  it  has  been  the  policy  to  shut  out  imports, 
which  alone  pay  for  exports,  making  the  exports  in  1880 
$17.02  for  each  person,  only  about  half  what  the  British  sold 
per  person. 

(/)  Another  fallacious  and  pernicious  assumption  of  Pro¬ 
tection  is,  that  manufactures  wall  not  come  iuto  a  new  coun¬ 
try  unless  they  are  coaxed  in  by  taxing  the  people  heavily 
to  support  them.  In  connection  with  this  false  assumption, 
Protection  always  makes  a  promise  which  it  never  yet  was 
known  to  fulfil,  namely,  that  after  the  industries  have  been 
fostered  a  while  by  restrictions  in  their  favor  they  may  then 
be  let  alone  to  go  forward  under  freedom.  The  promise 
may  be  dismissed  with  the  remark,  that  no  instance  has  been 
i Jcnown  to  occur  in  the  whole  history  of  “ protection”  of  an 
infant  industry  fostered  by  it  reaching  a  point  at  which  in  its 
own  judgment  it  could  forego  the  foster-hand  and  take  care  of 
itself  but  on  the  contrary  it  has  been  usual  if  not  universal  for 
such  dependent  to  clamor  for  more  and  more  as  time  went  on 
until  the  people  refused  outright  to  act  as  wet-nurse  any  longer. 
The  assumption  may  be  easily  disproved,  first,  by  letting  a 
little  common  sense  in  upon  it,  and  second,  by  a  simple  state¬ 
ment  of  facts  in  relation  to  our  own  colonial  history.  The 
assumption  is,  that  a  people  cannot  prosper  until  they  are 
roundty  taxed,  that  a  new  colony  settled  on  fertile  land  and 
surrounded  by  all  natural  resources  cannot  get  their  ploughs 
and  carts  and  clothes  and  houses  by  the  mere  application  of 
labor  and  capital  to  land  and  water,  but  must  first  authorize 
a  few  of  their  number  to  levy  taxes  on  the  rest  before  the 
colony  can  come  into  any  considerable  diversity  of  occupa¬ 
tions.  The  hoof  and  tail  are  quite  visible  in  this  assumption  : 
the  men  who  make  it  are  men  who  like  to  live  without  work 
at  the  cost  of  those  who  do  work.  If  the  few  can  only  per¬ 
suade  the  rest  to  let  them  do  the  taxing,  the  some  skill  that 
persuades  will  not  be  slow  to  think  out  specious  pretences, 
plausible  reasons,  and  even  patriotic  considerations.  But 
the  simple  truth  is,  that  diversity  of  employments  is  looted 


502 


POLITICAL  ECONOMY. 


* 

in  human  nature  and  in  the  circumstances  amid  which  God 
has  placed  men,  and  so  far  is  it  from  being  true  that  taxes 
and  restrictions  are  needful  in  order  to  foster  manufactures, 
taxes  and  prohibitions  cannot  prevent  them  from  springing 
into  life  !  They  are  just  as  natural  to  men  and  colonies  as 
agriculture  is.  Indeed,  agriculture  can  scarcely  take  a  step 
without  them.  The  farmers  must  have  ploughs  and  carts 
and  other  implements,  and,  depend  on  it,  there  are  some 
natural  mechanics  in  that  colony.  Clothes  are  as  needful  as 
food,  and  spinning  and  weaving  in  some  form  will  begin  at 
once,  and  prohibitions  will  be  powerless  to  stop  them.  Manu¬ 
factures  require  capital  indeed,  and  on  a  large  scale,  a  large 
capital.  So  does  agriculture  just  as  much.  The  progress  of 
these  two  is  interdependent.  They  naturally  keep  step  to  the 
music  of  each  other.  Large  capitals  are  the  growth  of  time 
and  of  frugality  and  of  natural  facilities  under  freedom.  No 
new  society  can  come  at  once  into  all  the  forms  of  industry 
which  adorn  an  old  established  State  ;  there  must  be  a  grad¬ 
ual  growth  of  capital  and  of  skill,  and  as  these  increase,  one 
branch  of  industry  after  another  comes  in  and  finds  a  stable 
foothold  ;  and  as  capital  and  population  and  a  possible  division 
of  labor  further  increase,  and  the  rate  per  centum  of  capital 
goes  down,  many  branches  of  manufacture  become  profitable 
which  it  would  be  sheer  folly  to  undertake  at  an  earlier  period. 
Diversity  in  manufactures  is  good  for  any  country,  but  only 
a  natural  and  profitable  diversity,  in  which  each  branch  can 
stand  on  its  own  legs,  and  not  find  it  necessary  to  tax  all  its 
neighbors  to  make  its  own  profits  equal  an  average  of  theirs. 
The  only  sound  rule  is  to  enter  upon  branches  of  industry 
just  so  fast  as  they  become  profitable,  and  no  faster. 

The  history  of  the  colonies  which  constituted  the  original 
United  States  is  interesting  in  this  regard.  The  mother 
country,  bound  to  the  doctrines  of  the  Mercantile  System, 
was  jealous  of  colonial  industries  from  the  start,  and  as  these 
gradually  developed  in  the  natural  way  just  indicated,  met 
them  with  growing  restrictions  and  prohibitions.  Colonial 


FOREIGN  TRADE. 


503 


sl iip-building,  commenced  in  1631,  was  firmly  established  by 
the  first  generation  of  men  inhabiting  New  England  shores. 
The  manufacture  of  linen,  woollen,  and  cotton  cloth  was 
begun  in  Massachusetts  in  1638,  in  Rowley,  by  some  fi  mi- 
lies  from  Yorkshire  ;  and  became  so  remunerative  in  a  couple 
of  years  that  some  acts  of  the  General  Court  designed  to 
stimulate  it  were  repealed.  Brick-making,  glass-works,  and 
the  manufacture  of  salt,  were  all  begun  in  Massachusetts 
before  1640.  Tannery  and  shoe-making  began  about  that 
time,  and  within  20  years  boots  and  shoes  became  article 
of  export;  while  in  1643  the  younger  Winthrop  established 
iron-works  at  Braintree  and  Lynn,  which,  after  some  losses, 
were  successfully  prosecuted.  So  native  are  manufactures 
to  a  new  country,  so  rapid  was  their  progress  in  the  first 
century  of  these  feeble  colonies,  that  Parliament,  in  1698, 
entered  upon  a  decided  policy  to  curtail  colonial  manufac¬ 
tures.  Take  this  law  as  a  sample  of  many:  —  “  After  the 
first  day  of  December ,  1609 ,  no  wool ,  or  manufacture  made 
or  mixed  with  wool ,  being  the  produce  or  manufacture  of  any 
of  the  English  plantations  in  America ,  shall  be  loaden  in  any 
ship  or  vessel ,  upon  any  pretence  whatsoever , — nor  loaden 
upon  any  horse ,  cart ,  or  other  carriage ,  —  to  be  carried  out  of 
the  English  plantations  to  any  other  of  the  said  plantations ,  or 
to  any  other  place  whatsoever .”  Thus  the  fabrics  of  Massa¬ 
chusetts  were  forbidden  to  find  a  market  in  Connecticut, 
or  to  be  carried  to  Alban}^  to  traffic  with  the  Five  Nations. 
“  That  the  country  which  was  the  home  of  the  beaver  might 
not  manufacture  its  own  hats,  no  man  in  the  colonies  could 
be  a  hatter  or  a  journeyman  at  that  trade,  unless  he  had  served 
an  apprenticeship  of  seven  years.  No  hatter  might  employ 
more  than  two  apprentices.  No  American  hat  might  be  sent 
from  one  plantation  to  another.’ ’  In  1701  the  three  charter 
colonies  are  reproached  by  the  lords  of  trade  “  with  promot¬ 
ing  and  propagating  woolen  and  other  manufactures  proper  to 
England.”  In  1721  New  England  alone  had  six  furnaces 
and  nineteen  forges,  and  there  were  many  others  in  Pennsyl- 


504 


POLITICAL  ECONOMY. 


vania  and  Virginia.  Parliament  enacted  in  1750  that  no  more 
mills  should  be  erected  in  America  for  slitting  or  rolling  iron, 
or  forges  for  hammering  it,  or  furnaces  for  making  steel ; 
and  in  certain  cases,  agents  of  the  crown  were  authorized  to 
tear  down  such  establishments  as  “ nuisances .”  How  far 
all  the  arts  of  navigation  had  been  carried  in  the  Colonies 
before  the  Revolution,  every  one  may  read  in  Burke’s  famous 
speech  on  Conciliation  with  America.  How  far  the  products 
of  the  loom,  the  forge,  and  the  anvil,  were  already  being 
exported,  in  spite  of  British  legislation,  to  other  countries, 
an}T  one  may  see  in  Lord  North’s  last  proposals  and  conces¬ 
sions  to  ward  off  the  Revolution.1 

(g)  Protectionists  claim  that  their  system  enlarges  the 
‘  ‘  home  market.  ’  ’  Professor  Thompson  has  stated  that  by 
a  persistent  policy  of  protection  a  home  market  would  be 
created  for  all  the  breadstuffs  that  the  country  produces  ; 
and  John  Roach,  the  shipbuilder,  expatiated  before  the 
Tariff  Commission  of  1882  on  the  advantages  which  the 
farmer  derives  from  the  better  home  market  created  by  pro¬ 
tection.  A  ridiculous  fallacy  underlies  this  claim.  A  market 
is  made  of  buyers  with  return  services  in  their  hands.  A 
bigger  home  market  consists  in  more  domestic  buyers  than 
before  all  ready  with  acceptable  pay  in  their  hands.  If  pro¬ 
tection  can  enlarge  the  home  market,  it  must  be  either  by 
increasing  the  number  of  births  or  diminishing  the  number 
of  deaths  in  a  given  time  in  a  given  country.  Precisely  how 
a  big  bundle  of  big  taxes,  which  the  whole  population  must 
pay  in  one  form  or  another,  may  be  made  to  stimulate  births 
or  prolong  lives,  no  reasonable  man  can  see,  though  a  pro¬ 
tectionist  may  see  it.  If  he  can  see  and  show  it,  his  task  is 
then  but  half  done,  for  he  must  also  see  and  show  how  these 
same  onerous  taxes  may  multiply  return-services  in  the  hands 
of  this  increased  population !  If  he  try  to  get  out  of  this 
snug  place  by  claiming  that  the  better  “home  market”  is 

1  See  Palfrey’s  N.  E.,  ii.  53,  and  iv.  19;  Bancroft's  U.  S.,  iii.  106,  and  vii.  179; 
Ninth  Annual  Report  Mass.  Bureau  of  Statistics  and  Labor,  1878. 


FOREIGN  TRADE. 


505 


made  by  new  immigrants  with  values  in  their  hands,  he  can¬ 
not  escape  by  this  route,  because  he  must  first  see  and  show 
what  there  is  in  big  taxes  to  invite  immigrants  at  all ;  and 
besides,  he  is  scared  even  by  the  handiwork  of  “pauper 
labor,”  and  of  course  he  is  not  prepared  to  welcome  the 
“  pauper  laborers  ”  themselves,  of  which  class  as  described 
by  him  the  immigrants  would  mostly  consist.  As  a  matter 
of  fact,  Thompson’s  “  home  market  ”  does  not  seem  to  have 
kept  pace  with  the  production  of  cereals,  or  even  with  the 
restricted  products  of  protected  manufactures,  as  is  shown 
by  the  frequent  clogging  of  the  market  for  all  these  ;  and 
the  farmers  of  Iowa,  and  of  the  West  general^,  do  not  seem 
to  reciprocate  the  warm  glances  of  love  which  John  Roach 
sends  them  from  the  banks  of  the  Delaware. 

( h )  One  of  the  bad  things  about  protective  tariff-taxes  is, 
that,  while  their  main  motive  and  purpose  are  obvious  enough, 
no  one  concerned  in  their  enactment  can  possibly  foresee  what 
their  whole  action  will  be  in  practice  ;  so  that,  a  general  tariff- 
act  is  never  practically  what  it  is  supposed  to  be,  and  certain 
features  of  it  strike  in  unexpected  places,  often  to  the  con¬ 
sternation  of  its  framers  and  friends.  For  example,  in  the 
wool  and  woollens  tariff  of  18G7  an  inadvertent  description 
covered  the  serges  and  lastings  of  certain  Massachusetts  shoe¬ 
makers  ;  and  John  B.  Alley  of  Lynn,  representing  them,  has¬ 
tened  towards  Washington  to  repair  the  menaced  mischief, 
but  met  in  New  York  members  from  the  session  already 
adjourned,  and  returned  to  palliate  as  best  he  could  to  the 
angered  artisans  the  inevitable  though  undesigned  rise  of  price 
in  their  raw  material.  He  and  they  were  willing  enough  that 
other  folks  should  pay  protection-taxes,  but  did  not  like  to 
pay  them  themselves  ;  indeed,  the  protectionists  arc  yet  to 
be  found,  who  relish  for  themselves  the  dose  they  mix  in 
glee  for  others.  The  tariff-bill  just  referred  to  put  a  high 
duty  on  the  fine  foreign  cloth  used  as  material  by  a  button 
facto r}r  in  western  Massachusetts,  whose  owners  were  strong 
protectionists  and  commended  the  doctrine  to  their  neighbors, 


506 


POLITICAL  ECONOMY. 


but  wbo  found  the  means  in  the  tariff  itself  of  evading  the 
payment  of  the  duty  themselves  by  punching  and  slitting 
the  imported  cloth  in  such  a  way  as  not  to  harm  it  for  cov¬ 
ering  buttons,  but  so  as  to  enable  them  to  claim  successfully 
at  the  custom-house  that  it  was  damaged  cloth  not  subject  to 
duty  !  This  they  did  for  years  and  years,  and  thus  gave  prac¬ 
tical  testimony  that  is  worth  having  to  the  benefits  of  free 
trade.  Their  own  opinion  of  protection  was  precisely  the 
same  as  that  of  the  detested  free  traders.  Not  out  of  their 

t 

words ,  but  out  of  their  hearts  and  actions  are  they  to  be 
judged.  This  is  not  an  isolated  instance  by  any  means,  nor 
were  those  Galileans  sinners  above  all  the  Galileans  because 
they  did  such  things. 

In  the  early  spring  of  1880  the  price  of  white  printing 
paper  rose  rather  suddenly  about  50%,  owing  partly  to  the 
tariff  duties  on  newspaper  and  the  chemicals  that  enter 
into  the  manufacture  of  paper,  and  partly  to  patent-rights 
accorded  to  the  owners  of  machines  for  making  wood-pulp 
for  paper ;  this  effect  of  complex  causes  not  calculated  upon 
by  Congress  startled  the  7,000  newspapers  of  the  country, 
slumberous  before  to  the  burdens  of  others  under  similar 
restrictions,  to  make  a  great  outcry  for  the  removal  of  the 
20%  duty  on  their  paper  and  the  25%  duty  on  types  and 
type-metal ;  Congress  too  was  startled  for  once  out  of  its 
venal  satisfaction  in  a  false  system,  because  these  7,000 
newspapers  stood  very  near  to  the  sources  of  political  life, 
while  the  cry  of  70,000  ordinary  and  unorganized  citizens 
would  not  have  produced  a  ripple  in  that  body  ;  for  news¬ 
papers  can  voice  their  own  grievances  and  compel  attention 
to  them,  while  the  minds  of  the  masses  of  the  people  are 
confused  as  between  “revenue”  and  “protection,”  and 
besides  they  have  no  organs  by  which  to  make  themselves 
felt  in  the  National  Legislature.  Commonly,  however,  the 
unlooked-for  effects  of  a  protective  tariff  strike  the  farmers, 
the  largest  and  most  defenceless  class  in  the  community,  and 
hence  the  best  possible  prey  for  Protection.  For  example, 


FOREIGN  TRADE. 


507 


when  the  duties  upon  band  and  hoop  iron  of  \\  to  If  cents 
per  pound  were  laid,  it  was  probably  not  thought  of  that 
thin  iron  bands  would  be  used  to  tie  up  cotton  bales  for  mar¬ 
ket,  but  they  were  found  to  be  very  useful  for  that  purpose 
by  means  of  buckles  attached,  while  both  the  foreign  and 
domestic  bands  were  raised  in  price  by  the  tariff-taxes ;  at 
first,  the  foreign  bands  came  in  as  hoop  iron,  but  Secretary 
Sherman  afterwards  ruled  that  they  could  come  in  as  iron 
“  not  otherwise  provided  for,”  which  made  a  difference  of 
about  12  cents  in  the  bands  needed  for  a  single  bale  of  cot¬ 
ton,  or8720,000  on  a  crop  of  G, 000, 000  bales  ;  the  iron  men 
of  Pennsylvania  made  gigantic  efforts  to  overturn  the  Secre¬ 
tary’s  decision,  conceding  that  they  had  under  it  about  12 
cents  protection  a  bale,  but  insisting  that  this  should  be 
doubled  by  the  old  construction  of  the  clause  on  hoop  iron, 
which  would  make  the  tribute  of  the  planters  to  Pennsylvania 
about  81,440,000  on  one  year’s  crop,  —  so  much  extra  cost 
of  production  just  for  tying  up  the  bales  !  Tariff-taxes  on 
jute  (815  a  ton),  on  jute  butts  (86  a  ton),  and  gunny-bags 
(40%),  whether  that  effect  were  anticipated  or  not,  are  a 
vast  burden  to  farmers  in  getting  their  products  to  market. 
A  wheat  grower 1  of  California  lately  told  the  writer  that  this 
extra  cost  is  a  chief  item  in  marketing  his  wheat,  and  a 
great  discouragement  to  growers  to  keep  their  wheat  separate 
from  others,  and  so  to  aim  at  the  highest  excellence  and  the 
highest  prices.  In  whatever  way  one  looks  at  it,  it  is  plain, 
that  the  farmers  are  the  ass  that  bears  most  of  the  burden 
and  eats  least  of  the  hay  of  Protection. 

(i)  Anglophobia  is  often  manifested  and  oftener  aj:  pealed 
to  by  the  protectionists.  The  giant  of  our  childhood  re¬ 
appears  to  our  mature  life,  singing  the  old  song,  — 

“  Fee,  foo,  fum, 

I  smell  the  blood  of  an  Englishman. ” 

The  idea  sought  to  be  conveyed  is,  that  for  the  United 

1  Mr.  Montgomery  S.  Currey. 


508 


POLITICAL  ECONOMY. 


! 

States  to  adopt  free  trade  would  be  to  bow  the  neck  to 
England,  would  be  to  copy  servilely  a  country  with  which  we 
have  had  two  wars  and  many  misunderstandings,  would  be  to 
lose  somehow  the  Declaration  of  Independence  and  smother 
the  screams  of  the  American  Eagle.  The  joke  and  the 
fallacy  come  in  at  the  same  place.  What  we  have  copied 
from  our  old  enemy  down  to  the  word  and  letter  and  pointing 
is  just  this  system  of  Protection!  We  took  it  bodily  and 
even  verbally.  Our  Navigation  Act  in  its  three  parts  both 
caught  the  spirit  and  is  couched  in  the  terms  of  the  English 
statutes.  There  is  nothing  original  and  nothing  America!* 
and  nothing  continental  in  the  petty  and  piddliDg  and  devil¬ 
ish  devices  of  our  protective  system.  It  is  all  insular  and 
old-world  and  antiquated.  When  Henry  Clay  called  it  the 
“American  System,”  Daniel  Webster  ridiculed  the  desig¬ 
nation  in  the  Senate,  and  pronounced  it  most  ww-Ameri- 
can.  On  the  other  hand,  England  has  no  patent-rights  in 
Free  Trade.  That  does  not  belong  to  her.  It  is  no  more 
English  than  it  is  Greek  or  Roman  or  Middle-Age.  Pro¬ 
tection  itself  was  not  born  till  the  second  half  of  the  17th 
century.  England,  one  of  the  first  to  adopt  it,  was  also  one 
of  the  first  to  cast  it  off  with  every  sign  of  loathing,  like  an 
old  garment  defiled.  Said  Gladstone  in  1856,  before  one 
tithe  of  the  benefits  and  strength  of  free  trade  had  come  to 
England:  “  There  is  one  domestic  feature  which  I  wish  it 
were  in  our  power  effectually  to  exhibit  to  the  governments  and 
inhabitants  of  foreign  countries.  They  know  by  statistics , 
which  are  open  to  the  world ,  the  immense  extension  which  our 
commerce  has  attained  under  and  by  virtue  of  freedom  of 
trade ,  and  the  great  advancement  that  has  happily  been 
achieved,  in  the  condition  of  the  people;  but  they  do  not  know 
what  it  has  cost  us  to  achieve  this  beneficial ,  way,  blessed 
change;  what  time ,  what  struggles ,  what  interruptions  to  the 
general  work  of  legislation ;  what  animosities  and  divisions 
among  the  great  classes  which  make  up  the  nation;  what 
shocks  to  our  established  mode  of  conducting  the  government 


FOREIGN  TRADE. 


509 


of  the  country ;  what  fears  and  risks ,  at  some  periods ,  of 
public  convulsion.  These  were  the  fine  and  penalty  we 
paid  for  long  adherence  to  folly.  We  paid  this  fine  and 
penalty  upon  returning  to  the  path  of  wisdom ,  which  too  late 
we  wished  we  had  never  left .”  When  the  United  States 
adopts  free  trade,  it  will  follow,  not  England,  but  Reason 
and  Right  and  Interest  and  Natural  Law  and  Good  Neighbor¬ 
hood  av.d  the  methods  of  Providence. 

(J)  The  commonest  and  shallowest  fallacy  of  protection 
is  this,  that  free  trade  ivould  flood  our  markets  with  cheap 
goods.  When  every  other  word  fails,  this  leaps  to  the  lips 
of  our  protectionists.  From  their  horror  of  being  “  flooded,” 
one  would  think  they  had  been  personally  present  at,  and 
had  a  vivid  recollection  of,  the  Noachian  deluge.  Other 
things  indeed  may  be  bad,  but  to  be  “flooded  with  cheap 
goods”  is  an  indignity  to  which  they  at  least  will  never 
submit !  Does  it  betray  a  secret  consciousness  that  their 
“house  is  built  on  the  sand,”  that  they  have  such  mortal 
fear  of  the  time  when  “  floods”  will  come?  One  is  almost 
ashamed  to  expose  soberly  so  patent  a  fallacy  in  argument. 
The  only  possible  way  in  which  this  country  can  be  flooded 
with  the  cheap  goods  of  foreigners,  is  to  flood  foreigners 
with  its  own  cheap  goods.  Foreigners  may  not  be  fully 
enlightened,  but  they  have  not  yet  shown  any-  great  zeal  to 
give  away  the  products  of  their  toil.  If  they  were  so  foolish 
as  to  give  their  goods,  is  there  any  good  reason  why  we  should 
not  take  all  they  will  give  ?  Undoubtedly  they  are  quite  ready 
for  an  exchange  of  goods  ;  and  if  we  were  up  to  our  oppor¬ 
tunities,  we  should  meet  them  more  than  half  way.  Our 
producers  are  every  little  while  complaining  of  over-produc¬ 
tion;  and  would  it  not  be  a  good  thing  to  find  a  quick 
market  for  all  this  surplus?  Would  not  these  cheap  goods  of 
foreigners  —  the  cheaper  the  better  —  legitimately  bought  by 
our  own  cheap  goods  now  liable  at  an}'  time  to  lie  idle  in 
stock  be  a  great  relief  and  blessing  all  round?  *  But  while 
this  plea  of  the  protectionists  is  worthless  as  an  argument, 


510 


POLITICAL  ECONOMY. 


it  has  great  force  as  a  confession.  It  confesses  that  Protec¬ 
tion  is  a  barrier  to  trade.  It  openly  confesses  that  a  pro¬ 
tective  tariff  makes  things  dear.  It  confesses  a  fondness 
for  Scarcity.  It  confesses  a  terror  in  view  of  Abundance. 
It  confesses  that  free  trade  would  make  things  cheap  —  very 
cheap,  as  they  ought  to  be. 

(k)  A  curious  fallacy  of  protection  is  the  sanctity  sought 
to  be  given  to  a  tariff-tax  so  soon  as  ever  it  is  gotten  upon 
the  statute-book,  no  matter  by  what  means  or  in  what  shape 
it  has  been  put  there.  The  suppressed  argumentation  is 
something  like  this  :  Certain  tariff-taxes  are  now  a  part  of  the 
law  c  f  the  land  ;  property  has  been  invested  in  virtue  of  this 
tariff-law  ;  therefore,  the  tax  must  be  touched  gingerly,  if  at 
all.  The  just  argument  would  take  this  form  :  All  laws  hostile 
to  the  public  welfare  are  in  their  nature  void,  and  should  be  at 
once  repealed  ;  protective  tariff-taxes  are  radically  in  conflict 
with  the  general  interests  of  the  people ;  therefore,  such 
taxes  should  be  at  once  repealed.  A  tax  levied  with  the  sole 
intent  and  effect  of  getting  money  for  the  support  of  a  just 
government  is  a  very  respectable  thing,  and  all  good  citizens 
unite  in  respecting  it ;  even  then,  there  is  nothing  sacred 
about  it,  but  it  may  be  brushed  aside  any  day  in  favor  of 
another  form  of  tax  shown  to  be  less  burdensome  to  the 
people  ;  but  a  tax  levied  for  the  benefit  of  the  few  at  the 
cost  of  the  many  is  destitute  of  respectability,  still  more  of 
sanctity,  and  no  rights  of  property  can  be  vested  under  such 
a  tax  good  either  in  law  or  morals.  A  high  court  in  the 
State  of  New  York  decided  in  1882  that  the  rights  of  property 
vested  in  what  is  called  “  watered  stock  ”  are  null  and  void, 
because  contrary  to  the  general  interests  of  the  people.  The 
same  principle  applies  to  rights  of  property  vested  under 
taxes  laid  in  conflict  with  the  common  weal.  The  taxes  are 
not  respectable  in  their  origin  or  purpose,  and  any  claim  that 
they  are  not  to  be  touched  because  they  have  been  enacted 
is  met  at  once  by  the  superior  claim  of  the  rights  of  the 
whole  people.  These  indeed  are  sacred;  and  no  lapse  of 


FOREIGN  TRADE. 


511 


time  can  give  sanctity  to  any  thing  that  invades  them.  If 
we  inquire  how  protective  tariff-taxes  have  been  put  on  in 
this  country,  we  shall  find  that  the}'  have  been  often  put  on 
pell-mell,  and  no  previous  notice  has  been  given  to  the  people 
that  the  taxes  were  coming.  Edward  Harris  paid  $58,000 
in  gold  duties  on  wool  bought,  paid  for,  and  on  its  way  to 
this  country,  when  the  wool  tariff  of  18G7  came  in.  If  there 
be  injustice  in  taking  off  such  taxes  in  much  the  same  way 
as  they  went  on,  there  are  a  plenty  of  competent  persons  who 
cannot  see  the  injustice.  IIow  can  the  abolition  of  taxes  on 
industry  do  any  harm  to  industries  as  a  -whole?  How  can  a 
people  be  crushed  down  by  a  removal  of  their  burdens? 
Suppose  every  tax  of  every  name  in  all  the  earth  could  be 
abolished  to-morrow,  what  harm  would  ensue?  Would  not 
all  exchanges  go  on  with  multiplied  power  and  profits? 
Taxes  are  indeed  necessary  for  the  support  of  government, 
but  even  when  wisely  laid  for  that  end  the}T  are  a  necessary 
evil,  because  they  take  just  so  much  out  of  what  would  other¬ 
wise  be  the  gains  of  exchanges.  But  we  have  shown  that 
protective  taxes  are  the  worst  possible  form  of  taxes,  and 
the  only  thing  to  do  with  them  is  to  abolish  them  altogether. 
When  they  are  numerous,  as  with  us,  they  become  a  uni¬ 
versal  burden,  and  there  are  but  few  of  the  protected  interests 
themselves  which  would  not  be  relieved  by  the  repeal  of  the 
whole  of  them.  It  would  be  unjust  to  repeal  a  part  and 
leave  the  rest  in  force,  to  strike  out,  for  example,  the  duty 
on  woollens  and  leave  the  duty  on  wools, — they  should  all 
go  by  the  board  together.  If,  however,  caution  and  prejudice 
hedge  the  way  to  this  simultaneous  action,  then  let  the  worst 
duties  go  first,  such  as  those  on  coal,  pig-iron,  lumber,  salt, 
wool,  that  is  to  say,  materials. 

It  is  a  notion  cognate  with  this  of  the  sanctity  of  taxes, 
that  it  is  needful  to  publish  in  connection  with  the  items  of 
tariff-taxes  what  is  called  a  Free  List ,  that  is,  a  long  list  of 
articles  not  taxed ;  just  as  if  the  dear  people  were  entitled 
to  be  taxed  on  every  thing  that  is  ever  imported,  but  as  a 


512 


POLITICAL  ECONOMY. 


gracious  boon  from  their  servants  in  Congress  a  large  number 
of  articles  are  actually  exempted !  On  an  actual  count  of 
them  in  an  official  copy  of  the  tariff  in  1882,  a  list  of  388 
articles  were  found  to  be  enumerated  duty-free,  of  which  the 
only  ones  of  much  consequence  were  Tea  and  Coffee.  Why 
not  have  a  short  tariff-list  of  taxed  articles,  and  assume  that 
every  thing  else  is  free  ? 

(?)  So  full  is  Protection  of  contradictions  and  absurdities, 
th.‘  l  one  often  hears  propounded  a  false  notion  the  opposite 
of  the  one  just  considered,  namely,  that  Free  Trade  is  a  sort 
of  heavenly  Theory  and  would  require  a  Millennium  to  work 
in.  We  are  told  in  one  breath  that  protective  tariff-taxes 
are  too  sacred  to  be  touched,  and  in  the  next  that  free  trade 
is  quite  too  holy  for  this  wicked  world  !  No  missile  has  been 
so  often  hurled  at  Free  Trade  as  this,  that  it  is  a  Theory ,  as 
if  that,  if  true,  would  be  enough  to  condemn  it.  Not  to 
seem  illiberal,  the  protectionist  is  usually  willing  to  concede 
that  it  is  a  good  theory,  though  of  course  it  will  not  work  in 
practice.  He  forgets  in  all  this  three  truths  :  first,  that  every 
thing  that  is  done  of  set  purpose,  and  not  by  mere  chance, 
is  done  on  some  underlying  theory  or  ground  of  action,  and 
that  it  must  be  better  in  the  end  to  do  things  on  a  good 
theory  than  on  a  bad  one ;  second,  that  there  is  nothing 
more  worthy  of  respect  than  a  good  theory  in  harmony  with 
the  facts  and  drift  of  the  universe,  such  as,  for  example, 
Newton’s  theor}7  of  Gravitation  ;  and  third,  that  the  conces¬ 
sion  of  the  theory  as  good,  concedes  also  that  the  practice 
is  good  under  it,  because  the  only  way  to  tell  whether  a 
theory  is  good  or  bad  is  to  test  it  by  practice,  since  that  is 
necessarily  a  bad  theory  that  does  not  work  well  in  practice. 
Wonderfully  simple  and  primitive  is  the  postulate  which 
makes  Free  Trade  a  theory  at  all,  namely  this,  that  an}7  two 
parties  wishing  to  exchange  services  for  their  mutual  benefit 
should  be  allowed  to  do  so,  provided  no  other  man’s  rights 
are  infringed  thereby.  Free  trade  does  not  compel  anybody 
to  trade ,  does  not  even  recommend  anybody  to  trade ,  it  merely 


FOREIGN  TRADE. 


513 


allows  those  to  trade  who  think  it  for  their  advantage.  The 
only  theory  in  the  premises  is,  that  men  are  their  own  best 
judges  in  the  matter  of  their  own  exchanges,  and  that  gov¬ 
ernments  have  not  the  right  and  still  less  the  wisdom  to 
restrict  this  advantageous  interchange.  No  far-off  millen¬ 
nium  is  required  for  the  play  of  these  principles,  no  benevo¬ 
lence  beyond  that  natural  to  men,  nothing  but  an  enlightened 
self-interest,  which  respects  the  rights  of  others  while  it  in¬ 
sists  upon  its  own.  Thirty-eight  neighboring  States  of  this 
Union  practise  an  absolute  free  trade  with  each  other  and 
like  it  very  much,  and  are  not  conscious  of  any  other  than 
earthly  motives  in  the  matter ;  man}^  of  them  have  similarly 
practised  towards  each  other  for  a  century,  and  every  citizen 
concedes  that  it  has  proved  highly  beneficial ;  why  should  not 
the  extension  of  the  same  freedom,  with  the  same  motives, 
as  between  neighboring  and  distant  foreign  States  be  highly 
beneficial  also?  Does  the  mutual  benefit  of  an  exchange 
depend  upon  the  accident  that  the  parties  to  it  are  citizens 
or  subjects  of  the  same  government?  The  south  end  of 
Vermont  trades  freely  and  advantageously  with  its  neighbors 
across  the  line  in  Massachusetts ;  is  there  any  good  reason 
why  the  north  end  of  Vermont  should  not  trade  just  as  freely 
and  advantageously  with  its  neighbors  across  the  line  in 
Canada? 

There  is  a  little  bit  of  reason  after  all  in  the  protectionist 
reference  to  the  millennium  in  connection  with  free  trade : 
it  betrays  an  inner  sense  that  two  such  good  things  are  in 
harmony  with  each  other  :  and  they  are  :  free  trade,  though 
resting  on  self-interest  only,  tends  strongly  to  lessen  wars, 
to  increase  intercommunication  and  good  neighborhood  among 
nations,  to  unify  the  human  race  on  earthly  grounds  of  inter¬ 
dependence,  and  so  to  aid  the  coming  in  of  the  better  and 
higher  Gospel,  itself  the  prelude  to  millennial  glories.  Just 
here,  we  can  see  on  the  other  hand,  how  much  of  a  theory 
Protection  is,  and  how  bad  a  theory  it  is.  Its  postulates  are 
many  and  complicated,  are  contrary  to  the  natural  impulses 


514 


POLITICAL  ECONOMY. 


i 

of  men  and  hostile  to  a  natural  state  of  things,  deny  in  effect 
that  exchanges  are  mutually  beneficial,  assume  that  somebody 
else  rather  than  the  parties  concerned  are  better  judges  of 
their  interest,  betray  an  obvious  aspect  of  greed  on  the  part 
of  those  who  get  protective  taxes  put  on,  cause  in  practice 
dissatisfaction  and  ill-will  as  between  citizens  of  the  same 
country,  and  set  all  the  nations  over  against  each  other  in  a 
posture  of  armed  neutrality  if  not  of  actual  hostility.  For 
it  must  be  observed,  that,  if  these  postulates  are  sound  at 
all,  they  are  sound  for  all  nations  and  for  all  time.  Happily, 
they  are  not  sound  for  any  nation  at  any  time. 

(m)  Because  protective  tariff-taxes  have  been  enacted  in 
this  country,  sometimes  by  large  majorities,  protectionists 
have  falsely  assumed  that  their  system  rests  back  on  public 
opinion  favorable  to  it.  All  that  can  be  said  with  truth  is, 
that  public  opinion  for  twenty-five  years  has  passivety  tol¬ 
erated  it,  while  the  force  that  has  held  it  up  has  not  been 
public  opinion  at  all,  but  log-rolling  combinations  among 
interested  men.  An  analogous  instance  was  that  of  the 
River  and  Harbor  bill  passed  in  the  summer  of  1882  over 
the  veto  of  President  Arthur.  That  bill  was  full  of  jobs. 
Creeks  and  other  waters  or  water-courses  not  down  on  the 
maps  came  in  for  a  share  of  the  spoil.  No  one  pretended 
at  the  time  that  public  opinion  favored  the  bill,  nor  was  that 
necessaiy  ;  afterwards  many  congressmen  lost  a  re-election 
in  consequence  of  having  supported  it,  so  really  hostile  to 
it  was  public  opinion.  One  locality  log-rolled  with  another, 
and  one  interest  with  another  interest,  and  not  even  a  veto 
could  stop  its  enactment.  A  knit-goods  bill,  doubling  the 
duties  on  those  fabrics,  was  pending  at  the  same  time. 
When  Connecticut  members  were  reproached  at  home  for 
favoring  the  Harbor  bill,  they  replied,  “  The  knit-poods  could 
not  have  passed  unless  the  Harbor  bill  passed  too.”  Here  it 
is.  “  You  tickle  me,  and  I  will  tickle  you.”  Knit-goods  are 
supposed  to  be  woollen  goods,  and  “protection”  accorded 
to  them  to  be  protection  for  the  woollen  interest.  While  this 


FOREIGN  TRADE. 


515 


knit-goods  bill  was  pending,  the  writer  met  an  old  pupil,  a 
manufacturer,  and  asked  him,  “  What  are  you  running  on, 
now?”  “On  these  knit-goods  they  are  making  such  a  fuss 
about  at  Washington.”  “  I  thought  you  spun  and  wove 
cotton.”  “Ido.”  “  Are  not  knit-goods  woollen  ?  ”  “No.” 
‘  ‘  Is  there  no  wool  in  what  you  are  making  ?  ”  “  Not  a  shred.  ’  ’ 

“  I  thought  this  bill  was  to  protect  woollen  manufacturers.” 
“  Oh!  ive  are  obliged  to  print  the  figure  of  a  sheep  on  every 
piece  we  make,  but  every  fibre  of  it  is  cotton!  ”  So  it  works 
The  high  tax  is  levied,  but  whose  is  the  help  and  the  harm 
cannot  be  foreseen. 

A  worse  feature  than  greedy  log-rolling  finds  place  in 
protective  tariffs.  Elbridge  G-.  Spaulding,  a  distinguished 
member  of  the  Ways  and  Means  during  the  civil  war  and 
just  after,  told  the  present  writer,  that  there  were  but  one 
or  two  members  of  that  Committee  besides  himself  who  did 
not  hold  stock  in  corporations  whose  business  was  “  pro¬ 
tected  ”  by  legislation  framed  in  that  Committee.  Some  of 
that  stock  was  known  to  have  been  “  put  where  it  would  do 
the  most  good,”  after  a  type  of  corruption  made  famous 
some  time  later ;  and  all  of  it  (however  acquired)  was  a 
scandal  in  the'  hands  of  men  whose  official  duty  it  was  to 
shape  the  taxes  of  a  great  country. 

(pi)  Another  specimen  of  false  assumption  and  fallacious 
reasoning  will  be  cited  in  this  connection.  Protectionists 
usually  deny  in  argument  that  tariff-taxes  raise  the  price 
of  home  articles  protected  to  the  extent  of  the  tax,  and 
often  deny  that  these  prices  are  raised  at  all,  alleging  that 
home  competition  under  the  encouragement  of  the  tariff 
shortly  lowers  prices  to  about  the  foreign  standard  ;  and 
members  of  Congress  have  made  elaborate  speeches  even 
claiming  as  the  result  of  protection  the  natural  decline  of 
prices  owing  to  the  better  organization  of  industry  and  the 
universal  use  of  machinery.  This  is  the  assumption  and 
the  claim.  Fortunately,  the  language  of  protectionists  under 
other  circumstances  than  in  argument  is  in  complete  refuta* 


516 


POLITICAL  ECONOMY. 


! 

tion  of  the  e  aim,  and  their  actions  deny  it  more  loudly  than 
their  words  can  assert  it.  In  the  u  Springfield  Republican  ” 
of  ^ov.  21,  1882,  under  the  heading  “  Twenty  Thousand 
[die  Men,”  occur  these  words :  “  The  Joliet  and  other  west¬ 
ern  Bessemer  steel  companies  have  decided  to  shut  down  Dec. 
1 ,  because ,  they  say ,  of  the  recent  fall  in  the  prices  of  roAls  and 
of  the  prospect  that  a  democratic  Congress  will  reduce  the  tariff 
on  steel  rails.”  That  was  more  than  a  j^ear  before  the  demo¬ 
cratic  Congress  was  to  assemble.  A  dim  and  distant  fear 
that  the  tax  on  their  fellow-citizens  of  about  100%  might  be 
lowered  or  removed,  contributed  to  stop  their  production  and 
throw  their  men  out  of  employ.  Two  days  later  the  same 
newspaper  announced,  that  the  knit-goods  producers,  although 
they  obtained  what  of  protection  they  wanted  of  Congress  in 
the  summer,  yet  in  the  late  autumn  they  too  agreed  to  low'er 
wages  and  work  three-fourths  time.  All  this  strikingly  con¬ 
firms  also  what  was  said  above  about  the  need  of  foreign 
markets  for  our  home-made  goods. 

There  is  a  simple  test  of  the  sincerity  of  protectionists 
when  they  affirm  that  tariff-taxes  do  not  raise  home  prices  of 
similar  goods,  which  was  never  known  to  fail,  and  which 
any  one  can  try,  namely,  propose  to  take  away  the  taxes, 
and  watch  the  reasons  given  for  resistance  to  that  proposal. 
Those  reasons  will  imply  that  the  taxes  do  raise  the  prices 
of  the  home  commodities.  If  not,  where  does  the  protection 
3ome  in?  Or,  what  is  the  motive  for  levying  such  taxes? 
Or,  why  did  the  Onondaga  Salt  Company  keep  selling  salt  in 
Canada  for  years  40%  less  than  in  Syracuse  itself?  The 
present  writer  has  seen  the  price-lists  by  which  that  company 
offered  to  lay  down  salt  at  the  stations  of  the  Grand  Trunk 
Railway  in  Canada  freight  paid  for  less  money  than  the  salt 
could  be  bought  for  in  Syracuse.  There  is  also  a  simple 
test,  which  any  one  can  try,  that  settles  the  point  whether 
consumers  pay  the  duties  in  the  price  of  the  wares  they  buy. 
Let  the  questioner  visit  any  large  merchant  in  any  seaport 
town,  and  inquire  the  price  of  any  sort  of  merchandise  “  in 


FOREIGN  TRADE. 


517 


bond,”  and  the  price  of  the  same  goods  “duty  paid.”  He 
will  find  that  the  two  prices  differ  by  just  the  amount  of  the 
duty,  and  the  merchant  will  be  equall}T  willing  to  sell  him 
the  goods  in  bond  and  let  him  pay  the  duty  for  himself, 
or  to  sell  him  the  goods  at  the  usual  duty  paid  price.  Then 
let  him  inquire  whether  American-made  goods  of  the  same 
quality  can  be  bought  cheaper  than  the  duty  paid  foreign 
goods  :  the  merchant  will  say  no,  and  this  for  two  simple 
reasons :  first,  because  the  American  maker  wants  as  large 
a  price  as  he  can  get,  and  the  foreigner  cannot  undersell 
him  wrhen  he  asks  the  duty  paid  price  of  the  foreign  article ; 
and  second,  because  if  the  American  maker  were  willing  to 
sell  his  goods  more  cheaply,  no  foreign  goods  of  the  same 
character  could  be  sold  except  at  a  loss  to  the  merchant, 
and  therefore  none  could  be  imported. 

(o)  Let  us  now  look  for  one  moment  at  a  striking  confu¬ 
sion  of  thought  and  terms,  and  a  coincident  fallacy  in  logic, 
which  one  meets  with  constantly  in  protectionist  argumenta¬ 
tion.  It  is  the  confusion  between  the  name  and  the  real 
nature  of  that  thing  called  “  protection.”  “Let’s  look  into 
t he  natur  on’t ,”  said  the  illiterate  though  longheaded  old 
larmer  while  arguing  to  the  point  with  his  college-bred  sons. 
Protection  of  person  and  property  and  reputation  under  a 
lawful  government  is  a  matter  so  justly  dear  to  every  right- 
minded  citizen,  that  that  good  word  has  been  taken  as  a 
designation  of  something  entirely  different  and  even  diamet¬ 
rically  opposite.  The  word  is  good,  but  it  does  not  describe 
the  thing  at  all.  Governmental  protection  in  the  only  true 
sense  of  that  term  is  something  accorded  with  a  firm  hand 
and  an  impartial  eye  to  all  citizens  without  distinction,  while 
the  same  phrase  in  its  bastard  sense  means  something  abstract¬ 
ed  from  the  masses  of  the  citizens  to  be  then  clandestinely 
and  indirectly  conferred  upon  a  favored  few.  We  have  seen 
abundantly  already  what  ‘ 4  protection  ’  ’  in  the  false  sense  really 
i.9,  as  complicated  and  comprehensive  taxes ,  and  it  is  a  piece  of 
pure  and  plausible  deceit  to  apply  a  word  so  suffused  with 


518 


POLITICAL  ECONOMY. 


i 

wholesome  associations  to  a  thing  so  penetrated  with  loath¬ 
some  selfishness.  Government,  which  is  nothing  but  a  com¬ 
mittee  of  citizens  to  attend  impartially  to  certain  great  needs 
of  the  whole,  is  thereby  prostituted  to  the  end  of  the  possible 
enrichment  of  the  few  at  the  cost  of  the  certain  impoverish¬ 
ment  of  the  most. 

This  explains  a  peculiar  and  long-noticed  fact,  namely, 
that  protectionist  talkers  and  writers  rarely,  or  never,  use 
radical  analysis.  They  rarely,  or  never,  begin  at  the  begin¬ 
ning,  take  simple  cases  and  follow  them  on,  try  to  show  why 
and  how  high  taxes  on  certain  things  promote  the  public 
prosperity,  and  thus  connect  cause  with  effect  and  premise 
with  conclusion.  On  the  contrary,  they  talk  endlessly  about 
“  Protection,”  ascribe  to  it  marvellous  efficacy,  often  refer  to 
it  as  if  it  were  the  leading  factor  in  the  development  of  indus¬ 
try,  without  ever  once  taking  it  to  pieces  before  our  eyes  and 
showing  us  that  it  is  adapted  in  its  very  nature  to  bring  about 
the  results  ascribed  to  it.  The  truth  is,  an  honest  analysis 
is  fatal  to  it ;  and  so,  recourse  is  had  to  smooth  words  and 
deceptive  phrases  and  ornamental  epithets  non-suggestive 
even  of  the  real  nature  of  the  thing.  Here,  too,  Shakspeare 
hits  it  to  the  life,  — 

“  Ornament  is  but  the  guiled  shore 
To  a  most  dangerous  sea.” 

“  What  damned  error  but  some  sober  brow 
Will  bless  it  and  approve  it  with  a  text, 

Hiding  the  grossness  with  fair  ornament.” 

TIenry  Carey  Baird  in  a  lecture  at  Brooklyn  in  the  spring 
of  1883,  and  in  various  writings  representative  of  the  views 
of  a  circle  of  Philadelphians,  is  fully  open  to  the  criticism 
implied  under  this  head.  He  also  practised  a  cognate  device 
tolerably  well  calculated  to  mislead  the  unwary,  namely,  rep¬ 
resenting  the  doctrine  of  free  trade  as  an  inference  or  out¬ 
growth  of  the  doubtful  dogmas  of  Ricardo  on  Rent  and 
Malthus  on  Population,  just  as  if  that  must  stand  or  fall 
with  these.  This  is  a  queer  confusion  of  matters  no  wa5 


FOREIGN  TRADE. 


519 


vitally  related  to  each  other.  The  inalienable  right  of  every 
citizen  to  sell  and  buy  freely  anywhere  and  everywhere, 
subject  only  to  the  prevenient  restraint  of  morals  and  health 
and  revenue,  is  in  no  way  dependent  on  what  Ricardo  thought 
about  rent  or  what  Malthus  thought  about  population  or 
•what  Carey  thought  about  association,  or  on  wrhat  any  eco¬ 
nomical  school  postulate  on  any  point  writhin  this  Science. 
That  inherent  right  does  not  borrow  leave  to  be,  nor  hang  as 
a  pendant  on  any  set  of  dogmas  or  doctrines,  because  it  ante¬ 
dates  them  all,  underlies  them  all,  and  will  survive  them  all 
except  as  it  is  intertwined  with  other  truths  as  impregnable 
as  itself.  One  mental  twist  finds  easily  its  fellow,  as  woollen 
fibres  interlock  in  felting,  and  so  Baird  advertised  himself  as 
an  “  Industrial  Publisher  ”  on  the  principle  of  lucus  a  non 
lucendo ,  since  the  chief  aim  of  all  his  writings  and  publica¬ 
tions  was  to  stop  by  force  of  law  some  natural  and  profitable 
industries.  The  chief  logical  fallacy  employed  by  this  whole 
class  of  writers  was  the  post  hoc  ergo  propter  hoc.  Because 
it  is  hard  work  to  destro}’  the  commerce  of  a  great  people  by 
legal  restraints  however  multiplied,  and  some  prosperity 
pushed  itself  into  prominence  in  spite  of  all,  behold  in  such 
prosperity  the  effects  of  our  beautiful  legislation  ! 

( p )  Lastly  along  this  line  let  us  look  at  the  monstrous 
incongruity  between  the  free  bounties  of  Nature  bestowed  on 
a  nation  and  the  effects  of  restrictive  legislation  upon  the 
actual  prices  of  these  very  bounties  when  they  come  into  the 
home  market.  Protection  thwarts  and  virtually  destroys 
those  gifts  of  God  to  an}’  people  which  are  most  peculiar  and 
abundant.  It  therefore  flings  its  fist  into  the  face  of  Provi¬ 
dence,  and  robs  the  people  of  their  natural  birthright.  We 
will  take  the  examples  from  our  own  country  and  at  the 
present  time.  First,  in  respect  of  Copper,  the  purest  and 
most  abundant  deposits  of  that  important  metal  in  the  w’orld 
are  found  in  the  upper  peninsula  of  Michigan.  Copper, 
accordingl}’,  should  naturally  be  cheaper  and  better  in  this 
country  than  in  any  other  country  in  the  world.  The  situation 


520 


POLITICAL  ECONOMY. 


of  the  mines  is  central  on  the  Great  Lakes  and  almost  in  con¬ 
tact  with  the  two  greatest  rivers  of  the  Continent,  so  that  the 
diffusion  of  the  product  over  the  country  is  providentially 
easy  and  cheap.  According  to  the  census  of  1880,  the  copper 
mines  of  this  country  put  out  in  that  year  50,650,000  pounds, 
of  which  the  Superior  region  mined  45,800,000  pounds,  or 
just  90%  ;  the  bounty  of  God  has  not  been  slack  in  bestow¬ 
ing  this  particular  necessary  of  life  upon  the  United  States  ; 
the  fact  remains,  notwithstanding,  that  ingots  of  copper  cost 
more  to  the  citizens  of  the  United  States  than  to  the  subjects  of 
the  “  effete  monarchies  ”  of  Europe,  many  of  which  have  not 
a  deposit  of  this  ore  within  their  borders ;  the  tax  in  our 
tariff  of  three  or  four  cents  a  pound  on  foreign  copper,  put 
on  on  purpose  to  raise  the  price  of  our  own  product  to  our 
own  citizens,  lifts  the  price  here  above  the  European  level ; 
the  Lake  Superior  copper  interest  sold  10,000,000  pounds  of 
copper  to  go  to  Europe  in  the  spring  of  1883  at  16  cents  per 
lb.,  while  it  charged  every  American  wholesale  buyer  17^- 
cents ;  and  at  the  same  time  people  wondered  why  ships 
could  not  be  built  in  this  country  as  cheaply  as  on  the  Clyde  ] 
There  are  vast  deposits  of  white  sand  in  western  Massa¬ 
chusetts,  said  to  be  the  best  in  the  world,  perfectly  adapted 
to  glass-making,  whence  it  is  carried  by  rail  to  distant  parts 
as  well  as  manufactured  on  the  spot,  and  one  would  think 
that  window-glass  and  other  glass  products  should  be  at  least 
as  cheap  in  the  United  States  as  in  those  countries  (like 
Great  Britain)  in  which  there  are  no  such  deposits  of  sand. 
As  a  matter  of  fact,  however,  glass  products  of  every  grade 
cost  more  in  this  country,  1863-83,  than  in  any  other  country 
in  Christendom.  Heavy  duties  on  foreign  glass,  put  into  the 
tariff  at  the  instance  of  the  domestic  manufacturers  in  older 
to  enrich  themselves  at  the  cost  of  their  countrymen,  more 
than  neutralized  the  free  gift  of  God  in  the  widespread  sand- 
beds,  and  turned  that  intended  blessing  into  a  positive  curse. 
If  there  had  not  been  a  bushel  of  sand  in  the  soil,  the  pur¬ 
chasers  of  glass  would  have  been  better  off  in  that  int(  rval, 


FOREIGN  TRADE. 


521 


Tf  every  pane  and  vessel  of  glass  bad  been  bought  from 
abroad  with  the  products  of  domestic  toil,  and  had  paid 
besides  a  round  revenue  tax  at  the  custom-houses,  the  people 
would  have  gotten  them  cheaper  and  better  than  they  did. 
There  was  an  extra  and  onerous  tax  on  light ;  and  the  broth¬ 
erly  cup  of  cold  water,  on  which  the  special  divine  blessing 
rests,  was  made  by  law  more  difficult  to  the  Lord’s  poor. 

Twice  within  two  decades  separate  deposits  of  borax 
have  been  discovered  on  the  Pacific  slopes,  and  each  time 
proposals  were  made  by  the  Committee  of  Ways  and  Means 
to  put  a  special  tax  on  foreign  borax  in  order  to  “  protect  ” 
the  domestic  article,  that  is  to  say,  to  force  the  American 
people  to  pay  more  than  before  for  their  borax  because  they 
had  found  a  good  store  of  it  upon  their  own  soil.  The  pro¬ 
duction  of  pig  iron  in  this  country  for  the  year  1882,  reached 
the  enormous  quantity  of  5,178,000  tons,  according  to  the 
report  of  the  American  Iron  and  Steel  Association,  and  one- 
half  of  this  quantity  was  produced  in  the  State  of  Pennsyl¬ 
vania  alone.  Iron  is  the  motlier-metal,  and  is  the  most 
absolute  of  the  necessaries  of  life  ;  the  deposits  of  iron  ore 
in  this  country,  and  the  deposits  of  coal  in  close  proximity 
with  it  with  which  to  reduce  it,  taken  together,  are  the  most 
remarkable  and  abundant  in  the  world  ;  iron,  in  all  its  forms 
and  modifications,  ought  to  be  cheaper  in  the  United  States 
than  in  any  other  nation  in  Christendom ;  Providence  so 
designed  it  to  be ;  but  it  is  probable  that  a  ton  of  pig  iron 
costs  the  American  citizen,  who  is  compelled  to  buy  it  of  his 
fellow  American  citizen,  more  in  gold  than  a  ton  of  the  same 
costs  any  buyer  in  Europe,  and  it  is  certain  that  iron,  in  its 
more  advanced  forms  and  modifications,  is  more  expensive 
in  the  United  States  than  in  any  market  in  Europe,  or  Asia, 
or  Africa. 

The  test  of  any  truth  in  the  economic  world  is  its  harmony 
with  other  known  truths,  and  the  test  of  falsity  also  is  its 
contradiction  to  such  truths.  Protection  accordingly  con- 
tiadicts  such  truths  at  practically  innumerable  points,  but 


522 


POLITICAL  ECONOMY. 


enough  of  these  have  now  been  cited,  and  we  pass  then 
briefly  to  the  last  branch  of  the  subject. 

4.  The  Fruitage  of  Protection  is  just  what  might  have 
been  expected  from  the  nature  of  the  system.  As  it  is  a 
bad  theory,  so  it  works  badly  in  practice  of  course.  Men  do 
not  gather  grapes  of  thorns  or  figs  of  thistles.  In  reference 
to  its  working  in  Great  Britain,  wre  quote  further  from  Glad¬ 
stone  in  1856  :  u  It  is  not  easy  to  calculate  the  amount  of  the 
fine  and  penalty  we  paid  for  long  adherence  to  folly ,  hut  if  it 
could  he  exactly  reckoned  and  fully  exposed  to  the  eyes  of  other 
nations,  it  might  supply  them  with  a  timely  warning  against 
imitating  our  former  errors ,  and  with  the  best  encouragement 
to  the  adoption ,  before  they  become  entangled  in  the  creation 
of  artificial  interests ,  of  our  recent  and  better  example.’ ’  In 
reference  to  its  working  in  the  United  States,  with  which  the 
reader  is  more  concerned  and  more  familiar,  we  will  append 
specimens  in  a  few  particulars. 

(1)  The  condition  of  ship-building  and  shipping  gener¬ 
ally,  and  especially  of  shipping  employed  in  the  foreign 
trade,  at  the  close  of  this  }?ear  of  grace  1882,  is  the  best 
commentary  on  the  effects  of  Protection  in  this  country.  It 
is  the  best,  because  ship-building  and  shipping  have  been 
perfectly  protected  for  more  than  90  years,  the  perfection 
of  protection  being  the  absolute  prohibition  of  competitors ; 
and  because  our  people  are  peculiarly  a  maritime  people, 
having  enormous  natural  advantages  in  that  direction,  and 
having  begun  in  the  “ Blessing  of  the  Bay  ”  built  in  1631  a 
a  career  of  great  enterprise  and  success  on  the  ocean.  In 
the  original  tariff  of  1789,  all  foreign-built  ships  were  ex¬ 
cluded  from  the  registry  under  the  American  flag,  and  to 
the  shame  of  that  flag  this  absurd  and  fatal  prohibition  is 
still  continued;  and  in  the  bill  of  1792,  all  foreign-owned 
ships  were  excluded  from  the  American  coasting  trade, 
which  only  less  disgraceful  law  is  also  still  in  force.  Both 
laws  were  designed  to  give,  and  did  give,  extraordinary 
privileges  to  American  ship-builders  and  shippers,  including 


FOREIGN  TRADE. 


523 


the  complete  monopoly  of  the  River-,  Lake-,  and  Coast-trade, 
the  sole  market  for  ships  employed  in  the  foreign  trade,  and 
other  advantages  under  the  home  registration.  Neverthe¬ 
less,  for  the  last  third  of  the  period  named,  shipping  inter¬ 
ests  of  all  kinds  have  declined  more  and  more  ;  other  causes 
have  contributed  to  this  decline  in  a  minor  way,  but  no 
adequate  explanation  of  it  can  be  found,  though  sought  foi 
far  and  near,  except  in  the  navigation  laws  and  in  the  tarifl- 
taxes,  increasing  the  costs  of  building  and  working  ships 
and  at  the  same  time  curtailing  the  markets  for  domestic 
goods.  In  1861  there  was  an  excess  of  American  over 
foreign  tonnage  entered  at  ports  of  the  United  States  of 
2,806,363  tons;  while  in  1871  there  was  an  excess  of  for¬ 
eign  over  American  tonnage  at  the  same  ports  of  2,523,704 
tons.  Of  the  whole  exports  and  imports  of  Christendom  in 
1870,  Great  Britain  had  almost  precisely  one-tliird,  and  had 
increased  her  amount  91  %  in  ten  years,  but  the  United 
States  had  increased  her  amount  in  the  same  time  but  16%. 
The  bulk  of  our  exports  and  imports  is  very  large,  but  very 
little  of  it  is  now  carried  upon  American  bottoms.  In  1826, 
when  the  volume  of  foreign  trade  was  $162,000,000,  92%  of 
it  was  carried  in  American  vessels  ;  after  fifty  years  of  pro¬ 
tection  to  ship-building,  when  the  trade  had  increased  to 
$1,176,000,000  in  1877,  onty  27%  was  borne  on  our  own 
bottoms ;  and  in  1882,  when  the  bulk  had  risen  to  over 
$1,500,000,000,  less  than  16%  of  it  was  carried  under  the 
American  flag.  Of  about  560  ocean  steamers  plying  the 
Atlantic  in  that  year  between  the  United  States  and  Europe, 
only  4  at  most  wore  the  Stars  and  Stripes.  Monopoly  may 
reign  in  inland  waters  and  along  shallow  coasts,  but  the 
deep  sea  is  too  broad  and  too  big  for  any  thing  but  Freedom. 

(2)  The  increasing  importations  of  foreign  manufactured 
goods  relatively  to  the  exportations  of  home  manufactures, 
and  the  consequent  loss  of  the  home  market  in  large  part  as 
well  as  the  almost  total  loss  of  the  foreign  market  for  domes¬ 
tic  made  goods,  are  a  second  result  of  this  false  system  of 


524 


POLITICAL  ECONOMY. 


Protection.  The  figures  on  this  point  are  startling.  The 
three  great  textile  industries  and  iron  and  steel,  which  are  in 
general  the  most  highly  protected  industries  in  the  country, 
in  behalf  of  which  the  claim  has  been  vociferated  that  the 
home  market  must  be  preserved  for  them  by  means  of  pro¬ 
tective  tariff  taxes,  show  an  astonishing  surrender  to  foreign 
competition  for  the  year  1882.  Five  years  before,  in  1877, 
the  imports  of  foreign  manufactures  of  these  stood  as 
follows :  — 

Silk  goods  ....  $21,830,000 
Cotton  goods  .  .  .  18,923,000 

After  five  years  more  of  legally  ‘ 4  controlling  the  home 
market  in  the  interest  of  home  industry,’ *  in  1882,  the 
account  stood  as  follows  :  — 


Woollen  goods . 
Iron  and  steel  . 


$25,000,000 

9,570,000 


Silk  goods  . 
Cotton  goods 


$41,400,000 

40,000,000 


Woollen  goods 
Iron  and  steel . 


$42,000,000 

50,000,000 


To  show  that  this  surrender  of  the  home  market  to  foreign¬ 
ers  in  spite  of  the  lofty  barriers  to  keep  them  out  is  annual 
and  steady  as  well  as  quinquennial  as  above,  it  is  only  need¬ 
ful  to  compare  1881  with  1882.  The  increase  of  the  impor¬ 
tations  of  the  latter  year  over  the  former  was  in 


Silk  goods . 21  % 

Cotton  goods . 25  % 


Woollen  goods . 34  % 

Iron  and  steel .  7  % 


On  the  other  hand,  the  exports  of  native  manufactures 
along  these  four  lines  of  protected  goods  were,  in  1882,  almost 
nothing  in  silks  and  woollens,  and  in  cottons  but  $13,100,000 
(a  very  trifle  more  than  in  1860),  and  in  iron  and  steel 
amounted  to  $15,700,000,  or  less  than  one-third  of  the  im- 
p  >rts  of  the  same  year. 

As  illustrating  the  same  downward  tendency  of  our  “  pro¬ 
tected  ”  manufactures  under  a  system  boasted  of  as  calcu¬ 
lated  to  make  them  paramount,  glassware  furnishes  some 
interesting  figures.  The  imports  of  glassware  for  1882  were 
$7,443,211,  and  the  exports  $713,792,  or  less  than  10a/o. 
Instead  of  seeking  for  foreign  fields  in  which  to  sell  glass,  it 


FOREIGN  TRADE . 


525 


would  seem  to  be  the  first  proper  business  of  American  man¬ 
ufacturers  to  try  to  see  how  they  can  occupy  at  least  one-lialf 
of  the  domestic  market  now  covered  by  the  foreigners.  With 
all  their  advantages  of  the  best  native  sand  in  abundance,  of 
freely  imported  skilled  laborers  from  Belgium  and  elsewhere, 
and  of  high  tariff  taxes  to  keep  out  the  foreign  products  and 
thus  raise  the  price  of  their  own,  foreigners  sold  to  Ameri¬ 
cans  in  1882  more  than  10  times  the  glass  Americans  sold 
them.  In  1832,  to  turn  the  picture,  a  Birmingham  family  by 
the  name  of  Chance,  unprotected  by  any  duties  such  as  the 
American  manufacturer  deems  so  indispensable  to  his  success, 
being  obliged  to  import  all  their  sand  from  across  the  Chan¬ 
nel,  and  importing  at  first  all  their  laborers  from  France  and 
Belgium,  established  a  self-supporting  and  prosperous  indus¬ 
try,  in  which  the  laborers  (now  native)  not  only  receive  good 
wages  but  are  cared  for  also  in  all  their  social  and  moral 
well-being.  ' 

The  census  of  1880  gives  the  total  number  of  persons  em¬ 
ployed  in  the  great  subdivisions  of  industry  in  the  United 
States  as  follows  :  — 


Trade  and  transporta¬ 
tion  . 1,810,250 

Manufactures,  mechan¬ 
ical  and  mining  .  .  3,837,112 


Professional  and  per¬ 
sonal  services  .  .  .  4,074,238 
Agriculture  ....  7,670,493 


The  following  table  compiled  from  the  censuses  of  the  last 
four  decades  will  be  found  to  yield  food  for  thought  in  the 
light  of  the  present  paragraphs.  It  relates  solely  to  manu¬ 


factured  goods  at  the  four  successive  periods. 

. 


1850. 

1860. 

1870. 

1880. 

Value  of  Products  .  .  . 
Value  of  Materials .  .  . 
Wages  paid  out  .  .  .  . 
Materials  to  Products,  %. 
Wages  to  Products,  %  . 

Average  Wages  earned  . 
Capital  to  Products,  %  . 
No.  of  Establishments  . 
Average  Hands  each  .  . 

$1,019,109,616 

555,174,320 

236,759,464 

54 

22 

$247 

52 

123,029 

7.79 

$1,885,861,676 

1,031,605,092 

378,878,966 

54 

21 

$289 

53 

140,433 

9.34 

$4,232,325,442 

2,488,427,242 

775,584,343 

58 

18 

$377 

50 

252,148 

8.16 

$5,369,579,191 

3,395,823,547 

947,953,795 

63 

17 

$346 

50 

253,852 

10.79 

526 


POLITICAL  ECONOMY. 


Our  manufactures  were  put  down  in  the  census  of  1880  as 
in  value  $5,309,579,191-  But  this  sum  contains  $1,670,000,- 
000  that  does  not  strictly  belong  to  manufactures,  such  as 
flouring,  lumbering,  blacksmithing,  sugar  refining,  coffee 
roasting,  slaughtering,  and  a  few  others.  This  sum  being 
taken  out,  there  is  left  in  round  numbers  but  $3,700,000,000. 
This  is  not  a  great  amount  for  50,000,000  of  people,  and  for 
a  land  with  such  natural  advantages  for  manufacturing  as  our 
own.  And  the  significant  and  very  serious  feature  of  the 
situation  is,  that  nearly  26%  of  this  real  manufacturing 
industry  of  the  country  is  in  metal  goods,  and  13%  of  it 
in  woollens,  both  of  which  were  shown  above  as  having  already 
surrendered  large  parts  of  the  “home  market”  to  foreign 
competitors  in  these  very  things.  More  than  23%  of  all  the 
laborers  in  real  manufactures  were  in  metals,  and  more  than 
13%  of  all  were  in  woollens,  that  is,  nearly  37%  in  these  two 
industries  alone,  both  of  which  are  highly  “  protected,”  and 
both  of  which  arc  weak  even  in  their  own  home  market. 

(3)  A  third  and  chief  fruit  of  Protection  in  the  United 
States,  1862-1884,  was  a  higher  range  of  prices  on  all  the  ne¬ 
cessaries  of  life  except  food ,  and  a  poorer  quality  in  all  manu¬ 
factured  goods ,  than  prevailed  anywhere  else  in  Christendom. 
For  example,  a  cotton  umbrella,  a  suit  of  clothes  of  any 
grade  for  either  sex,  common  crockery,  a  kit  $f  tools,  a 
brass  kettle,  steel  rails,  nails  and  hammers,  a  silk  hat,  hosiery 
and  knit  goods,  writing  papers  and  pens,  —  and  forty  similar 
things  besides,  — wCre  higher  in  price  in  this  interval  than  in 
any  other  country  of  the  civilized  world.  A  friend  of  the 
writer,  who  has  spent  most  of  his  life  as  a  missionary  among 
the  Zulus  near  the  Cape  of  Good  Hope,  told  him  in  1882, 
that  he  could  buy  in  Natal  every  form  of  clothing  for  him¬ 
self  and  every  form  of  clothing  for  his  wife  and  daughters, 
and  even  paper  for  his  sermons  and  Bible  translations,  cheaper 
and  better  than  he  could  buy  them  then  in  his  native  Massa¬ 
chusetts. 

Three  or  four  easy  and  conclusive  proofs  of  the  main  prop 


FOREIGN  TRADE . 


527 


osilior  under  this  head  are  open  to  us.  First,  it  was  the  solo 
design  and  end  of  these  protective  duties  to  lift  the  level  of 
the  prices  of  home-manufactured  goods  above  the  level  that 
prevailed  in  other  countries  for  corresponding  goods  ;  that  is 
the  whole  theory  and  purpose  of  a  protective  tariff ;  the  men 
who  got  these  taxes  put  on  the  foreign  goods  knew  what  they 
were  about  and  why  they  were  about  it ;  and  it  is  a  safe  step 
to  take  to  conclude  that  what  such  men  shrewdly  design  is 
actually  accomplished  by  their  device.  Second,  it  was 
avowed  over  and  over  again  in  the  debates  in  Congress, 
that  these  goods  could  not  be  made  and  vended  here  at  the 
current  foreign  prices  for  them  ;  if  the  duties  were  taken  off, 
domestic  prices  would  fall  at  once  to  the  foreign  level ;  and 
this  is  certainly  good  proof  that  the  domestic  level  was 
higher.  Third,  the  already  demonstrated  increasing  control 
of  our  home  markets  by  foreign  manufactures  proves  the 
same  thing  in  another  way  ;  these  manufactures  have  actually 
paid  high  duties  at  the  custom-houses,  and  their  price  lias 
necessarily  been  lifted  to  the  full  amount  of  those  duties,  and 
yet  such  was  the  high  level  of  home  prices  for  manufactures 
that  these  duty-paid  foreign  goods  could  still  sell  and  under¬ 
sell  in  our  markets  ;  and  better  proof  of  our  proposition  than 
this  could  not  be  desired.  Fourth,  the  action  of  Congress 
itself  in  December,  1871,  showed  unmistakably  the  sense  of 
that  body,  that  tariff  rates  had  made  the  market  for  certain 
protected  commodities  artificially  high.  In  October  of  that 
year  occurred  the  great  fire  at  Chicago.  A  city  had  been 
burned  down,  and  was  now  to  be  rebuilt.  When  Congress 
came  together  a  couple  of  months  after,  in  pity  for  the  sufferers 
by  the  Chicago  fire,  it  voted,  by  large  majorities  in  both 
Houses,  that  most  building  materials  designed  for  use  in  re¬ 
building  the  ruined  city  should  come  in  free  of  tariff  taxes  ! 
Why  was  this?  Of  what  significance  was  that  prompt  and 
praiseworthy  action,  unless  tariff  taxes  actually  raise  the  price 
of  domestic  goods  “  protected,”  and  unless  the  removal  of 
such  duties  lowers  prices?  Glass,  brick,  stone,  and  every 


528 


POLITICAL  ECONOMY. 


« 

form  of  ir3n  and  steel  materials,  were  cheapened  to  Chicago 
builders,  and  were  designed  to  be  cheapened  to  them  by  the 
remission  of  certain  tariff  taxes  ;  could  there  be  any  better 
proof  by  any  possibility  that  the  imposition  of  tariff  taxes 
actually  raises  prices,  just  as  they  are  designed  to  be  raised 
thereby  by  those  who  get  the  taxes  put  on  ? 

Our  proposition  is  also,  that  goods  of  a  worse  quality  than 
elsewhere  in  Christendom  were  vended  in  this  country  during 
those  years,  and  that  this  poor  quality  was  a  part  of  the 
fruitage  of  Protection.  There  were  two  reasons  for  this, 
both  of  which  are  all  the  time  operative  in  a  “  protected  ’  ’ 
market.  First,  the  market  for  protected  goods  no  longer 
depends  upon  their  quality  for  goodness.  An  artificial  mar¬ 
ket  has  been  created  by  putting  up  barriers  to  the  coming  in 
of  foreign  goods  of  that  grade.  Buyers  cannot  help  them¬ 
selves.  They  must  buy  in  the  restricted  home  market,  or  go 
without.  Sales  are  virtually  forced.  Good  quality  in  the 
product  is  naturally  and  inevitably  neglected  by  the  pro¬ 
ducer,  whenever  and  just  so  far  as  his  sales  no  longer  turn 
on  the  good  quality  of  his  products.  A  monopoly  market 
is  always  filled  with  inferior  goods,  and  always  will  be. 
Gibbon  noticed  this  a  century  ago,  and  said  :  “  The  spirit 
of  monopolists  is  narrow,  lazy,  and  oppressive.  Their  work 
is  more  costly  and  less  productive  than  that  of  independent 
artists ;  and  the  new  improvements,  so  eagerly  grasped  by 
the  competition  of  freedom,  are  admitted  bjr  them  with  slow 
and  sullen  reluctance.”  The  second  reason  for  poor  goods 
in  a  protected  market  is,  that  ‘‘protection”  is  just  like 
whiskey  :  it  uses  all  men  that  touch  it  alike.  It  raises  the 
price  of  his  materials  and  the  cost  of  all  his  processes  to 
the  protected  manufacturer  himself,  because,  in  order  to  get 
protection  at  all,  there  must  be  many  industries  protected, 
and  the  manufacturer  has  soon  reason  enough  to  cry  to  be 
delivered  from  his  friends.  He  has  purchased  the  right  to 
pluck  tbe  community  by  conceding  to  his  fellow-plunderers 
the  right  to  pluck  him.  His  costs  of  production  are  aug- 


FOREIGN  TRADE. 


529 


mented ;  his  foreign  market  is  lost,  because  his  brilliant  de¬ 
vice  will  not  let  him  get  his  pay  back  for  what  he  would  sell 
abroad  ;  if  people  are  such  fools  as  to  make  laws  to  prevent 
their  own  buying,  of  course  such  laws  will  prevent  their  sell¬ 
ing,  since  buying  and  selling  are  always  reciprocal  and  syn¬ 
chronous  ;  and  accordingly,  the  protected  manufacturer  must 
put  into  his  goods  less  weight  of  material,  pay  less  attention 
to  good  quality,  and  make  every  way  poor  goods  of  neces¬ 
sity. 

Alfred  Lapoint,  one  of  our  Peruvian  consuls,  warned  the 
State  department  in  1883  of  this  character  of  some  of  our 
manufactures  which  were  trying  to  find  a  South  American 
market.  He  said  :  “  It  is  my  duty  to  indicate  that  great  care¬ 
lessness  prevails  ivith  our  manufacturers  ;  for  instance ,  I  was 
called  upon  to  purchase  in  the  United  States  a  steam-pump 
and  boiler ,  which  I  ordered  from  one  of  our  most  famed  manu¬ 
facturers ,  and  when  it  arrived ,  not  alone  was  the  boiler  inade¬ 
quate  for  the  pump ,  but  actually  after  two  months'  work  the 
upper  tube  sheet  split  in  three  parts,  a  proof  of  its  bad  quality 
and  construction. 

(4)  Another  fruit  of  Protection  is  the  demoralization  of 
commerce,  the  encouragement  of  smuggling,  the  losses  of 
maintaining  expensive  vigilance  by  land  and  sea,  bribery 
of  custom-house  officials,  delays  and  disabilities  and  ill-will 
of  travellers,  and  many  more  such-like  things.  “  Gentle¬ 
men  ,”  said  Sir  Robert  Peel  to  the  House  of  Commons  in 
1842,  u  what  is  the  use  of  fixing  our  rates  so  high  as  to  allow 
the  smuggler  to  underbid  us?”  Secretary  Hugh  McCulloch 
in  his  Report  to  Congress  in  1866  estimated  the  various 
frauds  upon  the  customs  revenue  for  that  year  at  $92, 000,-- 
000.  Smuggling  and  undervaluations  and  “  custom-house 
oaths”  and  all  sorts  of  evasions  have  always  accompanied 
high  protective  taxes,  and  always  will  accompany  them.  Laws 
and  vigilance  have  been  and  are  now  unable  to  prevent  it. 
While  to  evade  honest  taxation  is  a  high  crime  against  So¬ 
ciety,  it  is  a  much  less  crime  (to  say  the  least  of  it)  to  evade 


580 


POLITICAL  ECONOMY. 


laws  passed,  not  to  get  revenue,  but  to  foster  class  interests 
at  the  expense  of  the  masses.  To  do  that  is  a  rude  attempt 
to  right  a  wrong  :  government  is  the  first  and  main  offender. 
Let  it  yield  to  all  men  their  just  rights,  including  the  right 
of  free  exchange  subject  only  to  fair  taxation,  and  it  will 
have  no  need  to  harry  smugglers,  and  spend  millions  of  the 
people’s  money  in  useless  vigilance.  To  levy  such  high 
duties  as  prevent  importations  and  encourage  smugglers  is 
a  gross  mistake  ;  because,  while  the  people  still  pay  artificial 
prices,  the  treasury  loses  expected  revenues,  honest  import¬ 
ers  suffer  in  their  business,  the  public  morality  becomes  cor¬ 
rupted,  and  even  the  protected  interests  are  not  ultimately 
“  protected.” 

So  pat  to  all  this  is  a  recent  official  passage,  that  we  quote 
from  L.  G.  Martin,  supervising  special  agent  of  the  treasury 
department,  in  a  report  made  November,  1882.  “  The  un¬ 

dervaluation  of  all  hinds  of  imported  merchandise  has  steadily 
increased  from  year  to  year  until ,  at  the  present  time ,  its  pro¬ 
portions  are  enormous.  The  reports  from  agents  sent  abroad 
to  examine  into  the  subject  show  that  nearly  all  classes  of  goods 
paying  ad  valorem  duties  exported  from  various-  countries  to 
the  United  States  are  undervalued ,  more  particularly  goods 
consigned  by  foreign  manufacturers  to  their  agents  in  this 
country.  The  practice  of  consigning  goods-has  groion  to  such 
proportions  that  there  has  been  absolutely  no  foreign  market 
value  for  many  articles  imported ,  as  there  are  no  sales  of  such 
goods  in  the  open  market ,  the  American  merchants  being  com¬ 
pelled  to  purchase  from  the  agent  of  the  manufacturer  to 
whom  the  goods  are  consigned.  Investigation  has  shown  that 
upon  the  advice  of  the  agent  foreign  manufacturers  often  in¬ 
voice  consigned  goods  far  below  the  cost  of  production.  It  is 
estimated  that  less  than  I0°/o  of  the  60  fo  ad  valorem  duty  on 
silk  is  collected ,  in  consequence  of  the  undervaluation  of  that 
article.  Velvets,  plushes,  laces,  embroideries,  edgings  and  like 
articles  have  been  reported  as  systematiccdly  undervcdued  by 
the  foreign  manufacturers,  many  of  whom,  when  spoken  to  on 


I 


FOREIGN  TRADE. 


53  i 


the  subject ,  openly  admit  that  they  invoice  their  goods  to  this 
country  at  lower  rates  than  they  do  to  other  countries ,  justify¬ 
ing  their  action  and  reconciling  their  conscience  upon  the 
ground  that  they  have  the  right  on  the  score  of  humanity , 
if  for  no  other  reason ,  to  evade  what  they  term  our  “  mon¬ 
strous  American  tariff ,”  declaring  that  if  the  American  mar¬ 
ket  was  cut  off  from  them ,  which  is  the  intention  of  our  high 
tariff ,  their  manufactories  toould  close  and  their  people  would 
suffer  and  starve  in  many  manufacturing  centres  whence 
nearly  all  their  manufactured  goods  are  exported  to  the 
United  States.” 

(5)  The  last  fruitage  of  Protection  to  be  mentioned  in 
this  connection  is,  that  it  is  hard  to  escape  from  the  clutches 
of  a  bad  system  of  taxation  long  maintained.  Prescription 
pleads  for  its  retention.  Privileged  classes  grown  up  under 
the  shadow  of  it  are  apt  to  be  imbittered  by  the  most  reason¬ 
able  pleas  for  its  abolition.  Clear-sighted  citizens  seeing  the 
wrong  of  it  from  a  moral  point  of  view,  and  the  losses  of  it 
from  an  economical  point  of  view,  are  apt  to  let  their  per¬ 
sonal  feelings  take  a  slant  towards  the  persons  concerned 
rather  than  towards  the  system,  and  this  begets  suspicions 
and  ill-will  and  class-feelings.  As  the  natural  drift  of  the 
system  is  to  build  up  the  fortunes  of  a  very  few  at  the  cost 
of  the  toil  of  the  very  many,  when  the  latter  clearly  perceive 
this  drift,  their  denunciations  are  often  bitterly  personal  and 
sometimes  extremely  unreasonable.  Society  gets  by  the 
ears  in  trying  to  extricate  itself  from  a  bad  slough  :  it  seems 
to  be  always  a  part  of  the  punishment  for  entering  upon  a 
false  system  that  it  is  hard  work  to  get  out  of  it.  The  ques¬ 
tion  at  bottom  is  a  purely  scientific  one,  and  Political  Econ¬ 
omy  is  perfectly  able  to  handle  it  as  such ;  but  it  gets 
entangled  with  other  and  diverse  social  questions,  and  what 
is  worse,  gets  mixed  up  with  party  politics  ;  so  that,  some¬ 
times,  a  matter  which  not  one  voter  in  a  thousand  really 
comprehends,  becomes  a  sort  of  test  on  one  side  or  the 
other  of  party  allegiance.  A  measure  which  concerns  all 


532 


POLITICAL  ECONOMY. 


» 

the  people  equally  often  becomes  a  sort  of  shuttlecock 
knocked  back  and  forth  between  the  parties.  An  amusing 
yet  disheartening  illustration  of  this  is  seen  in  a  letter  of 
Senator  Dawes  printed  just  before  the  meeting  of  Congress 
in  December,  1882.  He  had  been  very  instrumental  for 
twenty  years  in  getting  on  and  keeping  on  the  abominable 
taxes  of  the  tariff  that  was  in  vogue  at  that  date.  But  in 
the  elections  of  November  the  people  had  pronounced  un¬ 
mistakably  against  those  taxes  and  the  political  party  which 
devised  and  maintained  them.  The  Senator  writes  :  “  If  the 
tariff  commission  presents  a  bill  that  the  Republicans  can  sup¬ 
port ,  the  first  day  of  the  session  should  not  pass  before  it  is 
offered  as  an  amendment  to  the  internal  revenue  bill  in  the 
Senate  and  as  an  independent  measure  in  the  House ,  and  let 
the  Democrats  fight  it  if  they  will.” 

The  fruitage  of  the  tree  of  Protection  becomes  soon  or 
late  bitter  enough  even  for  the  persons  who  planted  and 
watered  the  tree. 

Shall  we  try  to  put  into  a  few  brief  propositions  the 
principal  points  of  the  present  chapter? 

1.  The  Constitution  of  the  United  States  plants  itself  pretty 
firmly  on  Free  Trade  ground. 

2.  The  motives  and  methods  and  mutual  benefits  of  foreign 
trade  are  in  substance  identical  with  those  of  domestic  trade , 
as  is  seen  in  the  silks  of  France  exchanging  with  the  cottons 
of  England. 

3.  The  origin  of  Protection  is  clearly  found  in  the  now 
acknowledged  falsities  and  follies  of  the  Mercantile  System . 

4.  A  tariff  from  its  very  nature  always  takes  but  never 
gives . 

5.  The  two  kinds  of  tariffs  Revenue  and  Protective  are 
wholly  diverse  from  each  other  in  purposes,  principles,  inci¬ 
dence  and  results. 

6.  Protective  tariff-taxes  are  always  laid  at  the  instance 
and  under  the  pressure  of  those  men  who  wish  to  sell  their 
wares  at  an  artificial  price. 


FOREIGN  TRADE. 


533 


7.  These  artificial  prices  of  home  commodities  weigh  like  a 
burden  on  the  masses  of  the  people. 

8.  If  a  nation  will  not  buy  of  foreigners  it  cannot  sell  to 
them. 

9.  Foreign  markets  are  lost  to  exports  in  proportion  as 
domestic  markets  are  refused  to  imports. 

10.  No  tariff-tax  was  ever  laid  on  foreign  laborers  coming 
in  to  compete  for  wages  with  domestic  laborers. 

11.  Protective  tariff-taxes  lessen  the  wages  of  laborers ,  in¬ 
crease  the  costs  of  production  to  manufacturers ,  and  bear 
doubly  on  the  farmers ,  compelling  them  to  pay  more  than  is 
just  for  what  they  buy  and  to  sell  for  less  than  is  just  what 
they  sell. 

12.  Protection  is  as  full  of  falsities  as  nuts  are  full  of 
meats. 

13.  The  fruitage  of  a  bad  system  corresponds  in  badness 
with  the  system  itself. 

14.  Free  Trade  does  not  compel  any  one  to  trade  with  for¬ 
eigners  but  only  allows  him  to  do  it  if  he  finds  it  profitable. 

15.  Free  Trade  secures  to  each  nation  the  good  things  of 
all ,  arms  each  with  the  improvements  in  all ,  maximizes  to 
every  toiler  the  rewards  of  his  work ,  and  tends  to  unite  all 
nations  in  bonds  of  peace  and  good-will . 


534 


POLITICAL  ECONOMY. 


CHAPTER  XIII. 

UNITED  STATES  TARIFFS. 

So  long  as  these  Colonies  were  under  the  British  dominion 
they  were  bound  by  the  rigid  fetters  of  the  Mercantile  Sys¬ 
tem.  Up  to  the  date  of  American  Independence,  Virginia 
and  Massachusetts  must  buy  most  they  wished  to  buy  in 
English  markets  and  carry  most  they  had  to  sell  to  English 
ports ;  the  Navigation  Acts,  though  much  evaded  in  the  col¬ 
onies,  were  strictly  applied  to  them,  and  the  Board  of  Trade 
were  watchful  for  their  enforcement ;  a  Boston  ship,  for  ex¬ 
ample,  could  not  sail  directly  to  China  for  teas,  but  the  teas 
mubt  first  be  brought  to  England  in  British  ships,  pay  a  duty 
there,  and  then  be  re-exported  to  the  colonies ;  and  it  was 
these  galling  restrictions  on  their  trade,  that,  more  than  any 
thing  else,  brought  on  the  Revolutionary  war.  Says  Ban¬ 
croft-  “ American  Independence ,  like  the  great  rivers  of  the 
country ,  had  many  sources ,  but  the  head  spring  which  colored 
all  the  stream  was  the  Navigation  Act.”  Any  one  who  will 
compare  the  Sugar  Act,  the  Stamp  Act,  the  Tea  Acts,  and 
the  Act  creating  revenue  commissioners,  with  the  other  acts 
and  grievances  complained  of  by  the  Stamp  Act  Congress  of 
17G5  and  the  Continental  Congress  of  1774,  will  see  plainly 
that  the  American  Revolution  was  waged  mainly  in  the  inter¬ 
ests  of  a  free  trade.  Of  the  thirteen  solemn  Resolutions  of 
the  first-named  Congress,  four  related  exclusively  to  these 
interferences  with  their  trade,  the  last  of  which  was  couched 
in  these  terms  :  •  u  That  the  restrictions  imposed  by  several  late 
acts  of  Parliament  on  the  trade  of  these  colonies  will  render 
them  unable  to  purchase  the  manufactures  of  Great  Britain.” 


UNITED  STATES  TAB  IFF 8, 


536 


Accordingly,  so  soon  as  our  fathers  saw  clearly  that  they 
must  set  up  for  themselves,  one  of  their  first  great  national 
acts  was,  antedating  the  Declaration  of  Independence  by 
three  months,  to  throw  open  the  commerce  of  the  thirteen 
Colonies  to  all  the  world  not  subject  to  the  king  of  Great 
Britain.  The  day  was  April  6,  177G.  One  grand  vote  of 
the  Continental  Congress  thus  swept  away  forever  the  old 
and  hated  colonial  system.  The  vote  abolished  British  cus¬ 
tom-houses  here,  instituted  none  in  their  stead,  and  invited 
the  flag  of  every  other  nation  to  our  harbors.  Bancroft 
(viii.  323)  says  :  “  Absolute  free  trade  took  the  place  of  hoary 
restrictions ;  the  products  of  the  world  could  be  imported  from 
any  place  in  any  friendly  bottom ,  and  the  products  of  Amei  i- 
can  industry  in  like  manner  exported  without  a  tax.”  Thus 
things  went  on  throughout  the  War,  and  essentially  thus 
till  the  establishment  of  our  present  form  of  government  in 
1789  ;  although  under  the  Confederation  it  was  one  of  the 
reserved  rights  of  the  States,  each  for  itself,  to  lay  such 
duties  on  exports  and  imports  as  it  chose,  and  this  powei 
was  sometimes  used  contrary  to  the  general  good.  No  ill 
effects  followed  this  general  liberty  to  buy  and  sell  with  for¬ 
eigners,  any  more  than  ill  effects  follow  at  present  the  libert}7 
of  all  the  people  of  our  38  States  to  buy  and  sell  freely  with 
each  other,  because  every  thing  that  is  bought  has  to  be  paid 
for  and  the  pay  has  to  be  taken  for  every  thing  that  is  sold. 

While  the  war  was  still  going  on,  in  1778,  a  treaty  of  com¬ 
merce  was  signed  between  France  and  the  United  States. 
The  principles  of  this  treaty  were  excellent.  It  speaks  of 
“  founding  the  advantage  of  commerce  solely  upon  reciprocal 
utility  and  the  just  rules  of  free  intercourse;”  it  agrees  to 
avoid  “  all  those  burdensome  prejudices  which  are  usually 
sources  of  debate,  embarrassment,  and  discontent ;  ”  and  it 
professes  as  the  “  basis  of  their  agreement  the  most  perfect 
equality  and  reciprocity.”  It  is  pleasant  to  see  in  these  lib¬ 
eral  terms  the  then  pervading  influence  of  the  Physiocrats. 
The  treaty  of  Peace  with  England  in  1783  was  not  accom 


586 


POLITICAL  ECONOMY. 


panied  by  any  treaty  of  Commerce,  though  our  envoys  tried 
hard  to  get  one.  The  English  expected  great  losses  from 
their  political  separation  from  the  colonies,  but  they  found 
they  could  easily  control  the  trade  with  them,  partly  because 
they  had  previously  possessed  it,  and  partly  because  the  Con¬ 
federation  was  not  gifted  by  the  people  with  power  “  to 
regulate  commerce.”  As  always  in  war,  the  capital  of  this 
country  had  been  largely  destroyed,  and  consequently  the 
ability  to  produce  for  foreign  markets  much  curtailed,  and 
England  easily  took  most  there  was  in  exchange  for  her 
ready  goods ;  the  commercial  helplessness  of  the  confedera¬ 
tion  to  force  England  to  a  position  of  reciprocity  not  only 
led  the  latter  to  refuse  a  commercial  treaty,  but  also  led  her 
to  exclude  b}r  an  Order  in  Council  American  ships  from 
her  West  India  possessions,  between  which  and  this  country 
there  had  grown  up,  partly  through  some  relaxations  in  the 
Act  of  Navigation  and  partly  in  violations  of  it,  a  large  and 
profitable  trade ;  and  it  was  to  consult  upon  a  remedy  for 
this  bad  state  of  things,  that  a  meeting  of  the  leading  States 
was  held  at  Annapolis  in  1786.  Hamilton  and  Madison 
were  there  from  New  York  and  Virginia  respectively.  They 
persuaded  the  other  delegates  to  decline  entering  upon  the 
subject  of  commerce  at  that  time,  inasmuch  as  it  was  con¬ 
nected  with  other  defects  of  the  Confederation,  to  which 
their  present  powers  did  not  reach  ;  and  they  wisely  drew  up 
an  Address  to  the  Congress  of  the  Confederation  to  call 
another  meeting  of  all  the  States,  whose  delegates  should 
have  ample  powers  to  go  over  the  whole  ground  and  to 
devise  a  system  adequate  to  the  exigencies  of  the  countiy. 
Thus  was  summoned  the  Federal  Convention  of  1787,  which 
framed  the  Constitution  under  which  we  still  live,  which 
gives  to  the  national  Congress  the  needful  power  u  to  regu¬ 
late  commerce.” 

1.  In  pursuance  of  this  power  the  first  Congress  framed 
and  passed  in  1789  regulations  of  commerce,  which  we  shall 
call  the  Hamilton  Tariff.  We  name  it  so,  because  Hamilton 


UNITED  STATES  TARIFFS. 


537 


was  then  Secretary  of  the  Treasury,  because  he  is  known  to 
have  exerted  much  influence  over  the  members  who  framed 
the  bill,  because  his  own  principles  as  a  moderate  protec¬ 
tionist  were  actually  carried  out  in  this  tariff,  and  because 
lie  made  in  1791  an  elaborate  Report  to  Congress  covering 
the  whole  subject.  We  include  in  this  designation,  as  in 
subsequent  similar  designations,  not  only  the  original  act 
but  also  modifications  and  additions  passed  in  following 
years  in  harmony  with  the  ground-thought  of  the  original 
act. 

Because  the  new  Constitution  prescribed  that  11  all  bills 
for  raising  revenue  shall  originate  in  the  House  of  Represen¬ 
tatives ,”  the  main  debates  on  the  new  tariff  were  in  that 
branch  of  the  Legislature  ;  and  very  interesting  debates  they 
were,  as  Benton  has  abridged  them  for  the  use  of  posterity. 
Nothing  could  be  simpler  or  sounder  than  the  basis  of  the 
new  tariff  as  proposed  by  Madison,  the  acknowledged  leader 
in  the  debates,  namely,  the  revenue  system  of  1783,  as 
adopted  by  the  old  Congress  and  ratified  in  succession  by  all 
of  the  States,  excepting  New  York.  That  wras,  small  spe¬ 
cific  duties  on  wines,  spirits,  teas,  coffee,  cocoa,  molasses, 
sugars  and  pepper,  and  upon  all  other  goods  imported  5% 
ad  valorem.  That  was  the  basis  ;  and  in  the  earlier  part  of 
the  discussion  no  other  end  than  revenue  was  mentioned  in 
connection  with  the  taxes.  Madison  said  :  “J  own  myself  the 
friend  of  a  very  free  system  of  commerce:  if  industry  and 
labor  are  left  to  take  their  own  course  they  will  generally  be 
directed  to  those  objects  which  are  most  productive ,  and  that  in 
a  manner  more  certain  and  direct  than  the  wisdom  of  the 
most  enlightened  legislature  could  point  out;  nor  do  I  believe 
that  the  national  interest  is  more  promoted  by  such  legislative 
directions  than  the  interests  of  the  individuals  concerned .” 
It  is  significant  of  after  times  that  the  first  word  in  this 
debate  respecting  any  other  end  than  revenue  through  the 
taxes  came  from  Pennsylvania.  Hartley  said:  “  I  am 
therefore  sorry  that  gentlemen  seem  to  fix  their  mind  to  so 


538 


POLITICAL  ECONOMY. 


early  a  period  as  1783 ;  for  we  very  ivell  Jenoiv  our  circum¬ 
stances  are  much  changed  since  that  time :  we  had  then  hid 
few  manufactures  among  us ,  and  the  vast  quantities  of  goods 
that  flowed  in  upon  us  from  Europe  at  the  conclusion  of  the 
war  rendered  those  few  almost  useless;  since  then  we  have 
beer  forced  by  necessity ,  and  various  other  causes ,  to  increase 
our  domestic  manufactures  to  such  a  degree  as  to  be  able  to 
furnish  some  in  sufficient  quantity  to  answer  the  consumption 
of  the  whole  Union ,  while  others  are  daily  growing  into 
importance.  Our  stock  of  materials  is ,  in  many  instances , 
equal  to  the  greatest  demand ,  and  our  artisans  sufficient  to 
work  them  up  even  for  exportation.  In  these  cases ,  I  take  it 
to  be  the  policy  of  every  enlightened  nation  to  give  their  manu¬ 
factures  that  degree  of  encouragement  necessary  to  perfect 
them ,  without  oppressing  other  parts  of  the  community .” 

Hartley’s  cheerful  view  of  the  state  of  manufactures  at 
that  time,  less  than  ten  years  after  the  close  of  an  exhaust- 
ing  war,  without  a  particle  of  “  encouragement  ”  other  than 
the  natural  gains  of  trade  is  confirmed  by  Hamilton’s 
Report  on  manufactures,  in  which  he  enumerates  seventeen 
branches  as  then  thriving  so  as  to  fairly  supply  the  home 
market  and  settle  into  regular  trades.  These  were  skins 
and  leather,  flax  and  hemp,  iron  and  steel,  brick  and  pot¬ 
tery,  starch,  brass  and  copper,  tinware,  carriages,  painters’ 
colors,  refined  sugars,  oils,  soaps,  candles,  hats,  gunpowder, 
chocolate,  snuff  and  chewing  tobacco.  He  thought  some  of 
these  should  be  “  encouraged  ”  by  a  system  of  direct  boun¬ 
ties  from  the  treasury,  which  he  much  preferred  to  laying 
duties  of  a  protective  or  prohibitive  character.  He  inter¬ 
preted  the  taxing  clause  of  the  Constitution  as  it  is  interpret¬ 
ed  in  the  opening  paragraph  of  our  preceding  chapter ;  but 
money  being  once  raised  by  taxes  designed  for  that  purpose, 
he  held  a  loose  construction  of  that  part  of  the  clause  relat¬ 
ing  to  its  expenditure.  Historian  Schouler  (I.  186)  well 
says:  “ Once  more  laying  hold  of  the  “  general  welfare ” 
clause  of  the  Constitution ,  Hamilton  here  argued ,  under  color 


UNITED  STATES  TARIFFS. 


539 


of  giving  bounties  to  manufactures ,  as  though  Congress  might 
take  under  its  own  management  every  thing  which  that  body 
shoidd  pronounce  to  be  for  the  general  welfare,  provided  only 
it  was  susceptible  of  the  application  of  money.  Though  he 
limited  this  central  discretion  to  the  application  of  money,  and 
stated  some  restrictions  rather  vaguely,  the  insidious  tenor  of 
his  report  was  to  show  that  the  Federcd  power  of  raising 
money  was  plenary  and  indefinitely  great.”  Hamilton,  in 
short,  with  all  his  transcendent  merits  as  a  statesman,  was 
a  thorough  believer  in  a  paternal  government  instituted  and 
administered  by  what  he  would  call  the  “better  class;” 
the  drift  of  this  Report,  accordingly,  excited  quick  opposi¬ 
tion  both  in  the  Cabinet  and  in  Congress,  and  the  scheme,  to 
its  author’s  mortification,  went  over  for  the  time  without 
action;  this  Report  of  1791,  nevertheless,  gathered  friends 
to  Hamilton  at  the  time  among  influential  citizens,  and  long 
afterwards  furnished  (not  very  logically)  arguments  and 
authority  to  two  great  political  parties.  Hartley  and  Ham¬ 
ilton  agree  as  to  the  thriving  state  of  manufactures  at  the 
opening  of  the  new  government. 

Massachusetts  was  not  a  whit  behind  Pennsylvania  in  ask¬ 
ing:  for  discriminations  in  her  favor.  New  England  rum 
was  made  out  of  molasses,  and  Jamaica  rum  was  its  com¬ 
petitor  in  public  favor ;  distillers  in  the  neighborhood  of 
Boston  and  Salem  wanted  therefore  a  high  duty  on  Jamaica 
rum,  but  a  low  one  on  the  imported  molasses  used  in  the 
home  manufacture.  Madison  and  others  were  willing  to  dis¬ 
courage  rum-making  and  rum-selling  in  the  interest  of  tem¬ 
perance,  and  proposed  a  duty  of  eight  cents  a  gallon  on 
molasses,  which  called  out  indignant  bursts  from  Ames  and 
Goodhue.  The  latter  said :  “  Molasses  is  a  raw  material, 
essentially  requisite  for  the  well-being  of  a  very  extensive  and 
valuable  manufacture.  It  ought  likewise  to  be  considered  a 
necessary  of  life.  In  the  Eastern  States  it  enters  into  the 
diet  of  the  poorer  classes  of  people,  who  are,  from  the  decay 
of  trade  and  other  adventitious  circumstances ,  totally  unable 


540 


POLITICAL  ECONOMY. 


to  bear  such  a  weight  as  a  tax  of  eight  cents  would  be  upon 
them.  I  cannot  consent  to  allow  more  than  two  cents . 
Massachusetts  imports  from  30,000  to  40,000  hogsheads 
annually ,  more  than  all  the  other  States  together .  Fifteen 
cents ,  the  sum  laid  on  Jamaica  spirits ,  is  about  one-third  part 
of  its  value:  now  eight  cents  on  molasses  is  considerably 
more:  the  former  is  an  article  of  luxury ,  therefore  that  duty 
may  not  be  improper ;  but  the  latter  cannot  be  said  to  par¬ 
take  of  that  quality  in  the  substance ,  and  when  manufactured 
into  rum  is  no  more  a  luxury  than  Jamaica  spirits.”  Ulti¬ 
mately  the  Massachusetts  members  and  the  other  members 
inclined  to  protection  partially  carried  their  points,  more 
however  through  amendments  made  in  the  Senate,  which 
then  sat  with  closed  doors,  and  which  consequently  was 
more  open  to  the  influence  of  interested  petitions  which  soon 
began  to  pour  in,  than  through  open  discussion  in  the  House ; 
the  tax  on  molasses  was  fixed  at  two  and  a  half  cents,  and 
on  Jamaica  spirits  ten  cents,  a  gallon  ;  on  nails,  a  protective 
duty  of  one  cent  a  pound  was  laid,  because  Pennsylvania 
wanted  it,  and  because  the  making  of  them  was  then  a  house¬ 
hold  industry  in  New  England,  engaging  farmers’  families 
through  the  long  winter  evenings ;  and  an  accepted  Senate 
amendment  classed  hemp  and  cotton  together  as  two  products 
of  the  soil  well  worth  fostering,  hemp  at  three-fifths  of  a  cent 
and  cotton  at  three  cents  a  pound,  yet  hemp  constantly  pro¬ 
tected  to  this  day  has  never  risen  to  the  rank  of  a  staple. 

The  last  two  duties  seemed  to  be  a  concession  to  agri¬ 
culture,  but  the  members  interested  in  that  industry  soon 
perceived  that  they  were  being  worsted  on  the  whole  by 
the  manufacturers.  Says  Historian  Eliot  (p.  282)  :  u  The 
interests  of  the  Northern  industry ,  its  shipping ,  its  commerce , 
and  its  manufactures ,  called  for  a  very  different  policy  on  the 
part  of  the  Government  from  that  demanded  by  the  Southern 
agriculture.”  When  Lawrence  of  New  York  and  a  region 
much  interested  in  salt  works  then  as  well  as  now  proposed 
a  tax  of  six  cents  a  bushel  on  imported  salt,  it  brought  the 


UNITED  STATES  TARIFFS. 


541 


farmers  and  frontiersmen  at  once  to  their  feet.  Burke  o * 
South  Carolina  said:  UJ  need  not  observe  to  the  Committee 
that  this  article  is  a  necessary  of  life ,  nor  that  black  cattle, 
sheep,  and  horses  do  not  thrice  without  it;  on  these  considera¬ 
tions  alone  I  should  oppose  it;  but  I  know  likewise  that  it  is 
a  tax  particularly  odious  to  the  inhabitants  of  South  Carolina 
and  Georgia,  to  whom  the  price  is  already  oppressively  great. 
The  back  parts  of  that  State  are  obliged  to  haul  all  they  con¬ 
sume  two,  three,  or  four  hundred  miles  in  wagons,  for  which 
they  pay  about  seven  shillings  sterling.  Add  to  this  the  first 
cost ,  which  is  about  one  shilling,  though  sometimes  more,  and 
you  will  find  the  burden  sustained  by  those  who  live  remote 
from  the  seashore  sufficiently  unequal .”  Nevertheless  the  salt 
protectionists  had  it  then  their  own  way,  as  so  many  times 
since.  When  it  came  to  steel,  the  antagonism  between  a 
protected  manufacture  and  an  independent  agriculture  be¬ 
came  very  evident:  said  Clymer  of  Pennsylvania:  “  The 
manufacture  of  steel  in  America  is  rather  in  its  infancy ;  but 
as  all  the  materials  necessary  to  make  it  are  the  produce  of 
almost  every  State  in  the  Union,  and  as  the  manufacture  is 
already  established ,  and  attended  with  corisiderable  success,  I 
deem  it  prudent  to  emancipate  our  country  from  the  manacles 
in  which  she  is  held  by  foreign  manufactures.  I  hope,  there¬ 
fore,  gentlemen  will  be  disposed  under  these  considerations  to 
extend  a  degree  of  patronage  to  a  manufacture,  ichicli  a  mo¬ 
ment's  reflection  will  convince  them  is  highly  deserving  protec¬ 
tion Tucker  of  South  Carolina  rejoined  :  u  I  consider  the 
smallest  tax  on  this  article  to  be  a  burden  on  agriculture , 
which  ought  to  be  considered  an  interest  most  deserving  pro¬ 
tection  and  encouragement;  on  this  is  our  principal  reliance, 
on  it  also  our  safety  and  happiness  depend.  When  I  consider 
the  state  of  it  in  iliat  part  of  the  country  which  I  represent  on 
this  floor ,  and  in  some  other  parts  of  the  Union,  I  am  really 
at  a  loss  to  imagine  with  what  propriety  any  gentleman  can 
propose  a  measure  big  with  oppression,  and  tending  to  burden 
particular  States.  I  call  upon  gentlemen  to  exercise  liberality 


542 


POLITICAL  ECONOMY. 


and  moderation  in  ichat  they  propose ,  if  they  wi.  h  to  give 
satisfaction  and  do  justice  to  their  constituents .”  Yet,  as 
Pennsylvania  insisted  on  it,  the  duty  on  -unwrought  steel 
was  fixed  at  50  cents  per  cwt. 

In  the  course  of  the  same  debate,  Fisher  Ames  of  Massa¬ 
chusetts,  who  had  made  the  strongest  plea  against  the 
molasses  tax,  and  who  yet  was  the  strongest  stickler  there 
for  the  protectionist  view,  wrent  to  the  root  of  the  whole 
matter  of  the  antagonism  between  agriculture  and  artificial 
manufactures  in  a  few  frank  and  radical  words.  He  said : 
u  From  the  different  situation  of  the  manufacturers  in  Europe 
and  America ,  encouragement  is  necessary.  In  Europe  the 
artisan  is  driven  to  labor  for  his  bread.  Stern  necessity, 
with  her  iron  rod ,  compels  his  exertion.  In  America,  invita¬ 
tion  and  encouragement  are  needed.  Without  them  the  infant 
manufacture  droops ,  and  those  who  might  be  employed  in  it 
seek  with  success  a  competency  from  our  cheap  and  fertile 
soil.”  These  few  short  sentences  let  the  protectionist  cat 
right  out  of  her  bag.  Considered  as  simplicity  of  admission, 
they  are  very  amusing  ;  considered  as  a  condensation  of  the 
protectionist  argument,  they  are  very  admirable  ;  but  consid¬ 
ered  as  to  the  reality  of  wrong  and  loss  which  have  actually 
followed  this  antagonism,  they  are  very  sad.  The  substance 
of  the  plea  is,  that  our  people  were  not  poor  enough,  and 
particularly  the  agricultural  classes  were  not  poor  enough, 
for  the  best  interests  of  the  petted  manufactures.  He 
seems  rather  to  envy  the  situation  of  the  manufacturers  of 
Europe,  where  “  the  artisan  is  driven  to  labor  for  his  bread,” 
and  where  “  stern  necessity  with  her  iron  rod  compels  his 
exertion  ;  ”  and  to  deem  the  situation  in  America  unfortu¬ 
nate  ,  where  ‘ c  without  invitation  and  encouragement  ’  ’  (that 
is  to  say,  without  burdensome  taxes  imposed  on  the  people 
to  support  it)  “  the  infant  manufacture  droops,  and  those 
wdio  might  be  employed  in  it  seek  with  success  a  competency 
from  our  cheap  and  fertile  soil.”  Here  is  a  downright 
admission  that  high  wages  in  this  country  are  a  result  of  the 


UNITED  STATES  TARIFFS. 


543 


endless  opportunities  of  agriculture :  they  do  indeed  spring 
from  the  u  competency  ”  which  laborers  are  able  to  “  seek 
with  success  ”  “  from  our  cheap  and  fertile  soil.”  What  is 
then  to  be  done,  what  is  here  in  effect  advised  to  be  done? 
Why  the  only  thing  to  be  done  is  to  depress  agriculture  with 
onerous  taxes,  to  lessen  the  profits  of  farming,  so  that 
laborers  will  no  longer  “seek”  the  land!  Then  bring  in 
from  “  Europe  ”  “  the  artisan  ”  “  who  is  driven  to  labor  for 
his  bread.”  Not  the  cheapness  of  foreign  labor  which  they 
have  always  been  glad  to  get  for  themselves  at  the  cheapest 
possible  rate,  but  the  larger  returns  which  their  men  could 
get  by  the  same  effort  “from  our  cheap  and  fertile  soil,” 
have  been  the  “competition”  which  our  manufacturing 
employers  have  had  to  contend  against.  Protection  assumed 
at  the  outset,  and  has  maintained  to  this  day,  an  attitude  of 
unceasing  hostility  to  the  tillers  of  the  soil.  Protectionist 
manufacturers,  who  are  a  mere  fraction  of  the  population, 
have  cajoled  the  farmers,  who  are  one-half  of  the  popula¬ 
tion,  to  consent  to  pay  for  their  supplies  prices  artificially 
enhanced  by  law,  and  to  sell  their  produce  at  prices  artifi¬ 
cially  depressed  by  law,  in  order  to  enable  the  said  manu¬ 
facturers  to  carry  on  branches  of  industry,  which,  as  they 
sa}',  would  otherwise  be  wholly  unprofitable  and  impossible. 

As  finally  adjusted  after  long  discussions,  and  after  the 
appointment  of  conference  committees  between  the  Houses, 
the  Hamilton  Tariff  laid  specific  duties,  moderate  and  yet 
discriminating,  upon  thirty  articles,  mostly  manufactured, 
but  including  coal  at  the  instance  of  Virginia  at  two  cents  a 
bushel;  and  ad  valorem  duties  ranging  from  5  to  10%  on 
all  other  articles,  excepting  eleven  which  were  duty-free. 
Cottons,  woollens  and  linens,  since  so  highly  protected, 
came  in  at  5%.  The  average  duties  on  the  whole  list  were 
about  8%  ;  in  consequence  of  the  assumption  of  the  State 
debts  b}7  the  nation,  this  average  was  raised  a  year  later  to 
about  11%;  in  1792,  in  consequence  of  St.  Clair’s  defeat 
and  the  increase  of  the  army,  the  list  of  duties  was  revised 


544 


POLITICAL  ECONOMY. 


and  raised  on  the  average  to  perhaps  15%  ;  and  domestic 
difficulties  in  1797,  and  fears  of  a  French  war  in  1800,  caused 
at  each  of  these  dates  additional  taxes  upon  a  few  imported 
articles,  cottons,  woollens,  linens  and  silks,  paying  at  least 
12^-%.  As  the  misunderstandings  with  England  thickened, 
non-importation  schemes,  and  at  last  positive  embargoes, 
interrupted  the  play  of  the  Hamilton  Tariff.  The  gnat 
object  of  this  tariff  throughout  was  revenue ;  yet,  in  select¬ 
ing  from  time  to  time  the  particular  subjects  for  increased 
taxation,  an  eye  was  evidently  had  to  the  so-called  protection 
of  American  industry.  So  little  regard  for  consistency,  how¬ 
ever,  was  had  by  the  members  of  Congress,  so  little  tenacity 
as  to  abstract  principle,  that  the  same  men,  who  argued  for 
high  duties  on  things  their  constituents  were  desirous  to 
supply,  voted  steadily  for  low  duties  on  things  the  same 
constituency  would  have  to  purchase.  It  is  perhaps  strange, 
considering  that  England  was  still  fully  deluded  with  Protec¬ 
tion,  and  notwithstanding  the  tenor  of  the  causes  of  the  war, 
that  members  were  not  more  protectionist  than  they  were. 
As  has  been  said  in  another  connection,  they  adopted  the 
English  navigation  acts  entire  ;  and  in  laying  tonnage  duties, 
they  discriminated  strongly,  as  follows ;  six  cents  a  ton  on 
vessels  American  built  and  owned  on  entering  port  from 
abroad,  thirty  cents  a  ton  on  those  American  built  but 
owned  abroad,  and  fifty  cents  on  all  others.  The  protection 
in  the  tariff- taxes  was  mild,  but  it  was  enough  to  whet  the 
appetite  for  more ;  it  was  even  allowed,  for  the  Preamble 
of  the  Act  ran  as  follows  ;  “  Whereas ,  it  is  necessary  for  the 
support  of  the  Government ,  for  the  discharge  of  the  debts  of 
the  United  States ,  and  the  encouragement  and  protection 
of  manufactures ,  that  duties  be  laid”  and  so  on. 

As  a  measure  for  revenue,  this  tariff  was  unexpectedly  sat¬ 
isfactory.  During  the  eighteen  years,  1790-1808,  the  income 
from  it  quadrupled,  reaching  in  the  latter  year  $1G,3G3,550.58. 
The  increase  was  almost  regular  from  year  to  year ;  and  a 
comparison  of  these  eighteen  years  with  any  eighteen  years 


UNITED  STATES  TARIFFS. 


545 


of  our  after  history  when  we  have  had  decidedly  protective 
tai  iff s  will  yield  all  that  is  claimed  in  respect  to  the  superi¬ 
ority  of  a  low  revenue  tariff  over  protective  tariffs  in  point 
of  steadiness  of  income  and  especially  in  point  of  a  steady 
increase  of  income. 

2.  Our  second  tariff  was  passed  in  1816,  and  we  may 
designate  it  as  the  Calhoun  Tariff.  It  was  planned  indeed 
by  Dallas  of  Pennsylvania,  then  Secretary  of  the  Treasury, 
who,  like  Hamilton,  was  born  in  the  West  Indies  of  Scotch 
paientage;  but  the  most  distinctive  feature  of  the  bill,  and 
the  one  most  quarrelled  over,  was  the  pronounced  protection 
accorded  in  time  of  peace  to  cottons  in  the  interest  of  the 
cotton-growing  States,  whose  special  champion  on  this  occa¬ 
sion  was  Calhoun,  wiiich  makes  it  proper  that  the  tariff  take 
its  name  from  him.  Two  Massachusetts  men,  Lowell  and 
Jackson,  brothers-in-law,  had  started  a  modern  cotton-mill 
in  Waltham,  near  Boston,  in  1813,  and  constructed  in  it  with 
the  help  of  an  ingenious  mechanic  named  Moody  a  power- 
loom  ;  and  in  1816  they  went  to  Washington,  and  b}7  personal 
influence  with  Calhoun,  his  colleague  Lowndes,  w7ho  reported 
the  bill,  and  other  members  of  Congress,  contributed  largely 
to  the  introduction  into  this  tariff  of  its  protective  features 
as  towards  cottons.  Calhoun  was  under  the  impression  that 
a  domestic  market  for  cotton,  in  connection  with  the  foreign 
market,  would  raise  the  price  of  that  staple,  and  he  acted 
accordingly,  though  he  found  reason  afterwards  for  altering 
his  opinion  in  that  regard.  Lowell,  the  cotton  city  on  the 
Merrimack,  founded  in  1821,  was  named  from  the  successful 
lobbyist  of  1816.  The  tariff  of  that  year  is  interesting  and 
important,  because  then  first  the  country  entered  on  the 
protective  system  fairly  and  squarely ;  because  before  that, 
revenue  had  been  the  object  of  the  tariff-taxes  and  protection 
to  manufactures  the  incident,  whereas  now  protection  became 
the  object  and  revenue  the  incident ;  because  from  this  time 
on  there  grew  a  strong  opposition  to  the  system  on  the  part 
iff  the  maritime  and  landed  classes,  local  feelings  somewhat 


546 


POLITICAL  ECONOMY. 


excited  before  becoming  now  considerably  roused ;  and  be¬ 
cause,  Webster  and  New  England  strenuously  opposed  this 
tariff,  while  Calhoun  and  South  Carolina  strenuously  sup¬ 
ported  it,  which  positions  were  afterwards  exactly  reversed. 

Dallas’s  plan  divided  importables  into  three  classes  :  1st, 
Those  of  which  a  full  domestic  supply  could  be  produced ; 
2d,  Those  of  which  only  a  partial  domestic  supply  could  be 
afforded ;  and  3d,  Those  produced  at  home  very  slightly,  or 
not  at  all.  The  Secretary  recommended,  that  on  the  first 
class,  consisting  mainly  of  manufactures  of  some  of  Hamil¬ 
ton’s  seventeen  branches,  duties  should  be  laid  heavy  enough 
to  secure  the  market  to  the  home  manufacturers,  leaving  it 
to  domestic  competition  to  keep  down  the  prices.  In  the 
tariff  as  adopted  these  duties  were  fixed  at  35%,  except 
on  cannon,  small  arms,  and  printers’  type,  charged  20%, 
and  except  on  cordage,  window-glass,  and  boots  and  shoes, 
charged  specifically.  In  the  second  class,  he  placed  cottons, 
woollens,  metal  goods,  distilled  spirits,  and  malt  liquors, 
among  other  miscellaneous  articles.  On  these  he  suggested 
an  average  duty  of  20%,  as  still  leaving  the  door  open  to  for¬ 
eign  competition,  while  affording  a  fair  protection  to  the  do¬ 
mestic  manufacture  ;  but  in  favor  of  cottons  and  woollens,  he 
was  inclined  to  go  further.  The  manufacturers  of  these  fab¬ 
rics,  seeing  that  now  was  their  time,  had  sent  up  a  statement, 
of  which  quite  a  parade  was  made  in  the  House,  to  the  effect 
that  the  cotton  men  had  a  capital  of  $40,000,000,  employed 
100,000  persons,  worked  up  27,000,000  pounds  of  cotton 
yielding  81,000,000  yards  of  cloth,  of  which  the  value  was 
$24,300,000 ;  and  the  woollen  men  had  $12,000,000  as 
capital,  50,000  workmen,  consumed  wool  worth  $7,000,000, 
wrought  into  cloth  worth  $19,000,000.  These  figures  look 
suspicious  in  view  of  the  alleged  ratio  of  the  value  of  the 
raw  material  to  the  finished  product,  but  they  are  curious  as 
showing  an  example  of  what  has  always  been  the  general 
rule  in  this  country,  that  it  is  the  strong  and  rich  industries 
which  get  protection  and  not  the  weak  and  poor  ones.  Under 


UNITED  STATES  TARIFFS. 


547 


the  double  war  duties  of  the  last  two  or  three  years,  these 
fabrics  had  had  a  protectiou  of  about  30%,  and  Dallas  pro¬ 
posed  that  cottons  should  now  have  a  duty  of  33 |%,  with  a 
proviso  that  all  cottons  should  be  assumed  at  the  custom-house 
to  have  cost  at  least  25  cents  to  the  square  yard.  This  is  the 
famous  principle  of  the  “minimum.”  On  woollens  (except 
blankets  and  worsteds),  he  suggested  a  duty  of  28%. 

It  is  noteworthy,  that  the  new  tariff  was  not  discussed  in 
the  House  with  any  thing  like  the  fulness  of  the  former  one, 
and  the  penetrating  reader  will  not  be  at  a  loss  for  the  reason 
of  this.  When  John  Randolph  of  Virginia  moved  to  strike 
out  from  the  bill  the  proviso  for  the  cotton  minimum ,  and 
argued  at  some  length  “  against  the  propriety  of  promoting 
the  manufacturing  establishments  to  the  extent  and  in  the 
manner  proposed  by  the  bill,  and  against  laying  up  8,000 
tons  of  shipping  now  employed  in  the  East  India  trade,  and 
levying  an  immense  tax  on  one  portion  of  the  community  to 
put  money  into  the  pockets  of  another,”  —  Calhoun  rejoined, 
—  “  Until  the  debate  assumed  this  new  form,  he  had  deter¬ 
mined  to  be  silent ;  participating,  as  he  largely  did,  in  that 
general  anxiety7  which  is  felt,  after  so  long  and  laborious  a 
session,  to  return  to  the  bosom  of  our  families.  It  has  been 
objected  to  that  bill,  that  it  will  injure  our  marine,  and  con¬ 
sequently  impair  our  naval  strength.  How  far  it  is  fairly 
liable  to  this  charge,  he  was  not  prepared  to  say.  He  hoped 
and  believed  it  would  not,  at  least  to  any  alarming  extent, 
have  that  effect  immediately  ;  and  he  firmly  believed  that  its 
lasting  operation  would  be  highly  beneficial  to  our  commerce. 
Tie  trade  to  the  East  Indies  would  certainly  be  much  affected  ; 
but  it  was  stated  in  debate  that  the  whole  of  that  trade  em¬ 
ployed  but  six  hundred  sailors.  The  cotton  and  woollen 
manufactures  are  not  to  be  introduced,  they  are  already 
introduced  to  a  great  extent ;  freeing  us  entirely  from  the 
hazards,  and  in  a  great  measure,  the  sacrifices  experienced 
in  giving  the  capital  of  the  country7  a  new  direction.  The 
restrictive  measures  and  the  war,  though  not  intended  for 


548 


POLITICAL  ECONOMY . 


that  purpose,  have  by  the  necessary  operation  of  things  turned 
a  large  amount  of  capital  to  these  new  branches  of  industry. 
But  it  will  no  doubt  be  said,  if  they  are  so  far  established, 
and  if  the  situation  of  the  country  is  so  favorable  to  their 
growth,  where  is  the  necessity  of  affording  them  protection? 
It  is  to  put  them  beyond  the  reach  of  contingency.  ”  Thus 
he  goes  on  to  give  plausible  reasons  for  his  insistance  and 
his  vote,  but  he  does  not  even  touch  upon  the  real  reason. 
If  he  had  detailed  his  conversations  with  Lowell,  it  would 
have  been  far  more  to  the  point.  But,  as  always  happens 
when  men  really  act  from  unavowed  motives,  he  was  sus¬ 
pected  of  having  them  ;  and  he  guarded  himself :  44  He  was 
no  manufacturer  ;  he  was  not  from  that  portion  of  the  coun¬ 
try  supposed  to  be  peculiarly  interested.  Coming,  as  he  did, 
from  the  South,  and  having  in  common  with  his  immediate 
constituents,  no  interest  but  in  the  cultivation  of  the  soil, 
in  selling  its  products  high,  and  buying  cheap  the  wants  and 
conveniences  of  life,  no  motive  could  be  attributed  to  him 
but  such  as  were  disinterested.,,  Randolph  charged,  that 
the  discussion  showed  “a  strange  and  mysterious  connec¬ 
tion  ’  ’  between  this  measure  and  the  national  bank  bill  which 
had  just  passed ;  Calhoun  ‘ 4  wished  merely  to  reply  to  the 
insinuation  of  a  mysterious  connection  between  this  bill 
and  that  to  establish  the  bank.  He  denied  any  improper 
or  unfair  understanding,  and  could  challenge  the  House  to 
support  the  charge.” 

The  opposition  to  the  bill  knew  its  reasons,  and  avowed 
them  strongly.  For  example,  Telfair  of  Georgia:  44  On  the 
subject  of  impost  I  hold  it  a  sound  general  rule  that  no  other 
or  higher  duties  should  be  laid  than  are  both  necessary  and 
proper  for  the  purposes  of  revenue.  To  attempt  more ,  neces¬ 
sarily  increases  the  inducements  to  smuggling;  and  if  the 
encouragement  of  manufactures  be  the  object ,  it  is ,  in  effect , 
to  plunge  on  the  wid#  ocean  of  uncertainty ,  guided  by  facti¬ 
tious  lights ,  emanating  from  the  selfishness  of  those  who  tender 
them ,  and  which  never  can  be  relied  upon  for  the  purposes  of 


UNITED  STATES  TARIFFS. 


549 


wise  legislation.  But  what  is  the  character  of  the  measure 
before  you  ?  Instead  of  contemplating  the  protection  and  en¬ 
couragement  of  manufactures  as  secondary  and  collateral ,  it 
refers  to  them  as  the  primary  and  essential  cause  of  legisla¬ 
tion;  instead  of  the  benefits  flowing  to  them  being  considered 
merely  as  some  alleviation  of  burdens ,  made  necessary  by  the 
wa7tls  of  the  government ,  their  encouragement  has ,  in  the  whole 
course  of  the  discussion ,  been  placed  in  the  foreground  and 
admitted  to  be  the  principal  object  for  which  so  enormous  a  tax 
is  laid  upm  the  people  of  this  country  —  a  tax ,  the  proceeds 
of  which ,  so  far  as  it  means  protection ,  are  never  to  enter  the 
coffers  of  the  nation ,'  but,  by  a  species  of  magic,  transferred 
from  the  hands  of  the  consumer  into  those  of  the  manufac¬ 
turer — paid  by  the  people  indeed ,  but  7iot  for  the  purposes  of 
Governme7ity  As  finally  passed  after  much  chaffering,  the 
bill  put  on  both  cottons  and  woollens  a  duty  of  25  % ,  to  be 
reduced  after  three  years  to  20%,  and  the  important  proviso 
of  the  minimum  was  retained.  This  was  a  device  to  increase 
protection  without  seeming  to  do  so.  Pennsylvania  was 
pleased  by  a  duty  on  pig-iron  of  $9  a  ton,  on  anchors  and 
bar  and  rolled  iron  of  $30  a  ton,  and  on  sheets  and  rods  and 
hoops  of  $50  a  ton.  Nails  were  to  pay  three  cents,  and  iron 
and  steel  wire  from  five  to  nine  cents,  a  pound ;  and  raw 
steel,  $20  a  ton. 

Of  course,  this  success  of  the  manufacturers  roused  the 
hopes  of  the  Louisiana  sugar  planters.  Robertson  of  that 
State  said:  “  The  State  of  Louisiana,  Mr.  Chairman,  from 
its  happy  climate  and  fertile  soil  is  competent  to  furnish  the 
United  States  with  all  the  sugar  they  may  require  ;  but  that 
this  may  be  done  with  certainty  and  within  a  short  time, 
some  encouragement  is  indispensable.  Is  any  manufacture 
more  important  to  the  nation?  Is  there  one  which  may  be 
aided  by  a  tax  on  its  foreign  competition  with  less  injustice 
to  the  community,  or  with  greater  advantage  to  the  revenue? 
Gentlemen  call  it  an  agricultural  product ;  is  that  sufficient 
to  render  it  an  object  of  prejudice  ?  Have  our  manufacturers 


550 


POLITICAL  ECONOMY. 


already,  by  their  combinations,  succeeded  in  placing  their 
employment  on  higher  ground  than  that  of  the  agriculturist? 
I  fear,  Mr.  Chairman,  that  an  interest  is  springing  up  before 
which  every  other  is  to  be  prostrated  ;  the  mere  manufacturer 
is  to  be  preferred ;  whatever  injury  be  done  to  the  revenue, 
whatever  ruin  be  brought  on  maritime  industry ,  however  much 
the  agriculturist  suffer ,  the  manufacturer  must  and  will  be 
encouraged.  Does  the  manufacturer  of  wool  want  encourage - 
ment ,  foreign  cloth  is  shut  out ,  the  value  of  the  duties  given- 
up,  and  the  competition  so  beneficial  to  the  consumer  is  de¬ 
stroyed;  does  the  farmer  ask  to  be  protected  in  raising  sheep , 
so  as  to  furnish  the  raw  material ,  the  7iecessary  duty  on  for¬ 
eign  wool  is  denied ,  because  it  is  convenient  and  profitable  to 
the  manufacturer  to  purchase  wool  as  cheap  as  possible , 
whether  it  be  foreign  or  native .”  Accordingly,  the  duty  on 
brown  sugar  was  fixed  at  three  cents,  and  that  on  loaf  sugar 
at  twelve  cents,  a  pound.  On  Dallas’s  third  class,  the  rates 
were  mostly  fixed  with  a  view  to  revenue  only  :  on  molasses, 
five  cents  a  gallon ;  on  coffee,  five  cents  a  pound ;  on  salt, 
forty  cents  per  cwt.  ;  on  coal,  five  csnts  a  bushel ;  and  on 
silks,  stuff  goods,  and  blankets,  15%.  Two-thirds  of  a 
centuiy  after  this  date,  blankets  bore  in  the  tariff  100%. 

The  tariff  passed  in  April,  1816,  by  a  vote  in  the  House 
of  88  to  54.  “  And  thus  was  inaugurated  a  new  policy  with 

respect  to  the  imposition  of  duties  on  imports.  Duties  now 
became  excessive.  No  longer  the  5%,  the  7J,  the  10,  12J, 
15,  which  formerly  prevailed ;  but  all  these  doubled,  with 
additions,  and  the  introduction  of  minimum  valuations  which 
gave  to  a  high  duty  the  further  advantage  of  being  calculated 
upon  a  fictitious  value.  It  was  the  commencement  of  the 
long  discussion  on  the  tariff  policy  which  afterward  divided 
and  disturbed  the  country,  and  attained  the  height  of  an 
organized  State  resistance  to  a  tariff  of  protection,  and  a 
conditional  ordinance  of  secession,  if  it  were  not. abandoned, 
and  that  by  a  given  day  ”  (Benton).  The  average  of  all  the 
duties  in  this  tariff  at  first  was  about  25%  ;  the  next  year 


UNITED  STATES  TARIFFS. 


551 

there  was  a  further  copying  from  the  English  Navigation 
acts,  to  the  effect,  that  importations  by  foreign  ships  into 
this  country  should  be  substantially  limited  to  the  produce 
of  their  respective  countries ;  shortly  after,  the  reductions 
on  cottons  and  woollens  proposed  in  the  tariff  itself  were 
postponed  till  182G  ;  and  in  1820,  there  was  a  general  revis¬ 
ion  of  the  whole  tariff,  on  the  basis  however  of  Dallas’s  three 
classes,  under  the  lead  of  Baldwin  of  Pennsylvania,  chair¬ 
man  of  the  Committee  on  Manufactures,  in  the  interest  of 
higher  duties  for  the  sake  of  “  protection.”  New  England, 
as  voiced  by  Silsbee  of  Massachusetts  and  Foot  of  Connecti¬ 
cut,  still  opposed  the  protective  system  ;  and  even  Lowndes 
of  South  Carolina,  who  had  reported  the  bill  of  181 G,  was 
scared  by  the  steady  push  of  the.  manufacturers,  and  tried 
to  stem  the  current  of  increased  duties.  Let  Foot  speak  for 
the  opposition  :  “  Sir,  gentlemen  declare  that  this  measure  has 
been  requested  by  the  merchants  of  our  country ,  and  that  the 
agricultural  interest  does  not  object  to  it.  This  bill  has  been 
before  the  public  but  about  one  week;  and  if,  Sir,  the  commer¬ 
cial  and  agricultural  interests  of  our  country  had  as  many 
Representatives  on  this  floor  as  there  are  gentlemen  of  one 
profession  in  Congress,  you  would  hear  their  voice  in  tones  of 
thunder  against  this  bill.  Would  they  consent  to  pay  direct 
taxes  to  the  extent  of  $20,000,000  annually  ?  Who  must  pay 
your  additional  duties  ?  The  consumers,  cdl  will  acknowledge  ; 
and  it  has  been  truly  said,  that  the  agricultural  interest  com¬ 
prises  nine-tenths  of  the  whole  population.  If  gentlemen  who 
so  strenuously  advocate  this  bill  ivould  encourage  domestic 
manufactures  by  using  them  in  their  dress,  rather  than  those 
very  articles  of  foreign  manufacture  which  have  driven  the 
American  manufacturer  to  rum,  Sir ,  you  would  afford  them 
more  efficient  aid  than  any  legislative  provisions .”  The  vote 
for  the  revision  stood  90  to  69,  and  the  enhanced  taxes  were 
on  the  average  perhaps  30  °J0. 

3.  We  will  call  our  third  tariff,  which  became  a  law  in 
1824,  the  Clay  Tariff.  Henry  Clay,  though  Speaker  of  the 


552 


POLITICAL  ECONOMY. 


House  at  the  time,  took  a  very  earnest  part  in  the  tariff- 
dehate,  advocated  the  interests  of  Kentucky  in  hemp  and 
whiskey,  and  even  ventured  to  call  the  system  of  high  protec¬ 
tive  duties  —  now  eight  years  old  in  the  United  States-  — 
the  “American  System.”  It  was  now  a  savage  clash  of 
selfish  interests.  The  debates,  which  were  abler  than  any 
ever  before  had  on  this  topic  in  Congress,  turned  mainly  on 
molasses,  hemp,  cottons,  wool  and  woollens,  and  iron  and 
manufactures  of  it.  Kentucky  and  Louisiana  wanted  higher 
tariff-taxes  on  molasses,  the  raw  material  of  New  England 
rum  and  the  rival  of  sugar,  the  first,  to  make  rum  dear  and 
help  the  sale  of  whiskey,  and  the  second,  to  make  sugar 
artificially  high  in  the  interest  of  her  planters.  Ohio  and 
the  Middle  States  now  wanted  tariff-taxes  on  raw  wool ;  Penn¬ 
sylvania  wanted  higher  duties  on  imported  iron  products ; 
Kentucky  was  bound  to  get  good  prices  for  hemp  and  cordage 
from  the  ship  builders  and  riggers ;  Massachusetts  had 
always  liked  protection  on  ships,  and  was  coming  to  like  pro¬ 
tection  on  cottons  and  woollens,  though  Webster  voiced  the 
common  sentiment  of  New  England  in  this  debate  by  a  splen¬ 
did  speech  against  protection  in  general ;  while  South  Caro¬ 
lina  now  abandoned  her  position  in  1816,  and  led  the  general 
South  in  a  strong  opposition.  Middle  and  West  won  the 
day  from  North  and  South  in  the  passage  of  the  bill  by  a 
vote  of  105  to  102.  The  Speaker,  doubtful  how  it  might 
turn,  enumerated  as  adverse  to  the  bill,  (1)  The  splendid 
talents  arrayed  against  us  in  this  House  ;  (2)  We  are  opposed 
by  the  rich  and  powerful  in  the  land ;  (3)  The  Executive 
Government  afford  us  but  a  cold  and  equivocal  support ;  (4 ) 
The  importing  and  navigating  interests  from  misconception 
are  averse  to  us ;  (5)  The  British  factors  and  the  Britisli 
influence  are  inimical ;  (6)  Long  established  habits  and 
prejudices  oppose  us  ;  (7)  The  reviewers  and  literary  spec¬ 
ulators  are  hostile ;  and  (8)  The  leading  presses  of  the 
country. 

Let  us  see  how  it  struck  the  Speaker  himself :  “Wo  one 


UNITED  STATES  TARIFFS. 


553 


will  doubt  that  the  grain  of  our  country  produces  a  spirit  equal , 
at  least  to  that  produced  from  molasses ;  nor  our  ability  to 
produce  it  in  the  greatest  abundance.  He  did  not  mean  to  take 
up  the  moral  consideration  of  the  question.  He  intended  to 
ask  the  attention  of  the  Committee  to  the  matter  practically. 
A  certain  amount  of  spirituous  liquors  will  be  consumed ,  what¬ 
ever  we  may  wish  or  think  upon  it  as  moralists  or  philanthro¬ 
pists.  Assuming  that  practical  principle ,  we  are  to  consider 
whether  it  is  not  better  for  our  country  to  derive  the  whole 
profit ,  both  as  to  the  production  of  the  raw  material  and.  the 
distillation  of  it ,  rather  than  divide  it  with  foreigners.  Every 
gallon  of  spirits  distilled  from  foreign  molasses  and  consumed 
within  the  country  takes  the  place  of  a  gallon  of  spirits  dis¬ 
tilled  from  domestic  produce.  The  foreigner  enjoys  the  benefit 
of  the  raw  material ,  and  we  that  of  its  manufacture  only. 
This  latter  advantage  we  should  still  possess,  if  we  substituted 
a  native  raw  material  for  that  which  is  furnished  us  from 
abroad .”  The  tax  on  molasses,  accordingly,  went' up  to  ten 
cents  a  gallon  ;  and  similar  considerations  urged  in  behalf 
of  hemp  carried  up  the  duty  on  that  also  from  $30  to 
$44.80.  Neither  rise  was  carried,  however,  except  in  the 
teeth  of  pungent  truths  thrown  in  on  all  sides  by  members 
from  New  England.  Let  Webster  sample  these  :  “  One  is  a 
little  curious,  to  know  with  what  propriety  of  speech  this  imita¬ 
tion  of  other  nations  is  denominated  an  ‘  American  policy.' 
while ,  on  the  contrary ,  a  preference  for  our  own  established  sys¬ 
tem ,  as  it  now  actually  exists ,  and  always  has  existed,  is  called 
a  ‘  foreign  policy .’  This  favorite  American  policy  is  what 
America  has  never  tried;  and  this  odious  foreign  policy  is 
what ,  as  we  ore  told ,  foreign  states  have  never  pursued.  Sir , 
that  is  the  truest  American  policy  which  shall  most  usefully 
employ  American  capital ,  and  American  labor ,  and  best  sus¬ 
tain  the  whole  population.  With  me  it  is  a  fundamental 
axiom ,  it  is  interwoven  with  all  my  opinions,  that  the  great 
interests  of  the  country  are  united  and  inseparable ;  that  agri¬ 
culture,  commerce ,  and  manufactures ,  will  prosper  together , 


554 


i 


POLITICAL  ECONOMY. 


or  languish  together;  and  that  all  legislation  is  dangerous 
which  proposes  to  benefit  one  of  these  without  looking  at  conse¬ 
quences  which  may  fall  on  the  others.  All  domestic  industry 
is  not  confined  to  manufactures.  The  employments  of  agricul¬ 
ture ,  commerce ,  and  navigation  are  all  branches  of  the  same 
domestic  industry ;  they  all  furnish  employment  for  American 
capital ,  and  American  labor.  And  when  the  question  is, 
whether  new  duties  shall  be  laid  for  the  purpose  of  giving  fur¬ 
ther  encouragement  to  particular  manufactures ,  every  reasona¬ 
ble  man  must  ask  himself  whether  it  can  be  given  without 
injustice  to  other  branches  of  industry.  The  true  reason ,  Sir, 
why  it  is  not  our  policy  to  compel  our  citizens  to  manufacture 
our  own  iron ,  is,  that  they  are  far  better  employed.  It  is  an 
unproductive  business,  and  they  are  not  poor  enough  to  be 
obliged  to  follow  it.  If  we  had  more  of  poverty,  more  of  mis¬ 
ery,  and  something  of  servitude,  if  we  had  an  ignorant,  idle, 
starving  population,  we  might  set  up  for  iron  makers  against 
the  world.  There  is  no  reason  for  saying  that  we  will  work 
iron  because  ice  have  mountains  that  contain  the  ore.  The 
true  inquiry  is,  can  ice  produce  the  article  in  a  useful  state  at 
the  same  cost  at  which  we  can  import  it.  And  since  it  is 
stated  that  we  have  great  (quantities  of  fine  land  for  the  pro¬ 
duction  of  hemp ,  of  which  I  have  no  doubt,  the  question 
recurs,  why  is  it  not  produced?  ”  » 

Strong  and  unanswerable  as  were  most  of  his  points,  Web¬ 
ster  went  into  this  race  weighted,  and  was  beaten.  He  was 
not  ready  to  apply  throughout  his  own  fundamental  doc¬ 
trines.  Ships  may  be  wholly  protected  by  a  navigation  law, 
and  cottons  and  woollens  to  a  certain  extent ;  then,  why  not 
to  any  extent  iron  and  hemp?  Raw  bar  and  bolt  iron,  which 
was  made  $7  in  181 G,  and  was  carried  up  to  $15  by  Bald¬ 
win  in  1820,  now  rose  to  $22.40  a  ton.  In  spite  of  Web¬ 
ster’s  emphatic  words  in  this  debate,  —  “I  consider  the  cotton 
manufactures  not  only  to  have  reached,  but  to  have  qyassed, 
the  point  of  competition the  minimum  on  cottons  was 
raised  to  00  cents  ;  and  a  minimum  for  woollens  was  for  the 


UNITED  STATES  TARIFFS. 


655 


first  time  adopted,  namely,  33  J  cents,  while  the  duty  on 
woollens  was  made  30%,  to  be  raised  the  next  year  to  33-J%. 

While  things  were  going  lively,  the  wool-growers  thought 
that  they  must  have  something  too.  It  was  proposed  and 
ultimately  passed,  that  cheap  wool  should  be  taxed  15%, 
and  other  wool  20%  the  first  year,  25%  the  next  year,  and 
30%  thereafter.  Naturally  enough  the  woollen  manufac¬ 
turers  did  not  like  this,  and  hardly  thought  the  increased 
duty  on  woollens  balanced  it ;  Webster  said  :  “  This  bill  pro¬ 
poses,  also ,  a  very  high  duty  on  imported  wool;  and  as  far  as 
I  can  learn ,  a  majority  of  the  manufacturers  are  at  least  ex¬ 
tremely  doubtful  whether ,  taking  these  two  provisions  together, 
the  state  of  the  law  is  not  better  for  them  now  than  it  would 
be  if  this  should  pass.”  It  was  suggested  that  the  duties  on 
wool  be  struck  out.  On  this  point  hear  Livermore  of  New 
Hampshire  :  “  He  said  there  was  a  character  in  the  Eastern 
part  of  the  Union  known  by  the  name  of  the  New  England 
farmer,  whose  voice  he  wished  might  be  heard  on  the  pres¬ 
ent  question.  When  the  bill  appeared,  he  had  looked  it  over 
with  anxiety  to  see  what  had  been  done  for  that  character, 
and  he  found  only  two  items  in  it  to  compensate  him  for  all 
the  rest ;  these  were  the  duty  on  wool  and  the  duty  on  tal¬ 
low.  There  are  memorials  against  the  duty  on  wool  from 
men  who  raise  a  great  many  sheep,  but  they  are  men  who 
own  at  the  same  time  large  manufacturing  establishments, 
and  take  on  them  the  name  of  farmers.  They  are  capital¬ 
ists  ;  that  is  their  proper  name.  But  these  were  not  to  be 
heard  on  the  interests  of  the  farmer.  To  him  this  tariff  is  a 
bitter  pill.  Do  give  him  a  little  gold  on  the  outside,  just  to 
cover  it,  and  take  off  some  of  the  bitter  taste.  If  labor  is 
to  be  protected,  let  it  be  protected.  Don’t  give  it  a  less 
market  than  it  has  already.” 

The  dissatisfaction  of  the  South  was  well  expressed  by 
Govan  of  South  Carolina :  u  This  House,  Sir,  has  been  inun¬ 
dated  with  petitions  and  memorials  from  the  noisy  and  clam¬ 
orous  manufacturers  of  our  country,  ambitious  of  their  own 


556 


POLITICAL  ECONOMY. 


personal  aggrandizement ,  and  with  a  view  to  the  accumidation 
of  wealth.  They  are  in  favor  of  an  increase  of  duties.  The 
noise  and  clamor  come  from  a  few  clamorous  sets  of  manufac¬ 
turers,  who  I  venture  to  say ,  could  not  prosper  under  any 
state  of  things ,  even  with  an  entire  prohibition.  But  I  ash ,  is 
it  just  or  reasonable  that  we  should  be  called  on  to  protect  the 
improvident  and  unskilful  manufacturer ,  who  has  his  factory 
in  a  section  of  country  possessing  few  or  no  natural  advan¬ 
tages ?  We  may  go  on  passing  tariff  upon  tariff \  and ,  Sir , 
we  can  never  benefit  the  Western  grower  of  hemp ,  or  the  manu¬ 
facturer  of  cotton  bagging.  No  merchant  sends  a  single  dol¬ 
lar  abroad  but  what  he  receives  in  return  something  which  he 
considers  more  than  an  equivalent ,  for  every  exchange  is  a 
quid  pro  quo.  Any  thing  for  revenue ,  but  not  a  cent  for 
monopoly .”  The  average  duties  under  the  Clay  tariff  were 
about  33  °J0 .  It  is  an  excellent  proof,  that  industries  which 
are  petted  and  legislatively  protected  do  not  long  remain 
satisfied  with  what  they  receive,  but  are  soon  clamorous  for 
more  “  protection,”  that  the  Calhoun  tariff  gave  most  of  the 
interests  described  by  Govan  large  protection :  eight  years 
run  on,  and  they  call  for  more :  they  get  it :  are  they  satis¬ 
fied  ?  Why  should  they  be  ?  Instead  of  being  taught  to  rely 
on  themselves  and  on  their  natural  advantages,  they  learn  to 
lean  on  their  governmental  privilege  of  taxing  their  fellow- 
citizens  in  their  own  behalf.  Besides,  when  one  gets  help  in 
this  way,  others  must  have  it  too,  and  all  these  are  soon 
taxed  to  help  still  others,  “  and  still  they  come,”  till  all  are 
impoverished  together. 

4.  The  next  tariff  was  passed  in  1828,  and  was  called  in 
the  politics  of  that  time  the  Abominations  Tariff ,  which 
designation  it  may  well  bear  till  the  end  of  time.  The 
manufacturers  of  course  had  sent  in  new  petitions  and 
memorials  by  the  barrelful  to  secure  certain  prohibitive 
tariff  taxes,  and  had  held  a  convention  at  Harrisburg  whose 
demands  in  this  direction  were  so  preposterous  that  Buchan¬ 
an,  a  Pennsylvania  protectionist,  thus  denounced  them  on 


UNITED  ST  A  TES  TARIFFS. 


the  floor  of  the  House :  44  In  my  opinion  no  combination  of 
wool  growers  arid  wool  manufacturers  should  ever  attempt  to 
dictate  a  tariff  to  the  people  of  the  United  Stales ,  for  they 
would  be  more  than  men  if  self-interest  did  not  prejudice  their 
judgment ,  and  call  forth  propositions  for  their  own  benefit  at 
the  expense  of  the  community but  the  opposition  to  the 
whole  protective  and  prohibitive  system  had  now  become 
strong  in  argument  and  conviction,  though  it  realized  the 
hopelessness  of  argument  against  measures  which  derived 
no  part  of  their  impulse  from  reasoning,  as  McDuffie  of 
South  Carolina  said  ;  44  Although  experience  admonishes  us  of 
the  impotence  of  argument  against  measures  of  this  descrip¬ 
tion,  it  is  a  duty  we  owe  as  well  to  our  constituents  as  to  the 
nation  at  large,  to  protest  against  the  passage  of  a  bill  preg¬ 
nant  with  so  many  evils,  and  to  demonstrate  its  injurious  and 
destructive  bearing  upon  those  great  interests  which  we  are 
under  the  most  solemn  obligations  to  protect ;  ”  the  opposition 
was  not  strong  enough  in  numbers  to  prevent  the  passage  of 
the  bill,  but  it  was  able  to  load  it  down  with  objectionable 
features  and  make  it  in  many  respects  distasteful  to  its  advo¬ 
cates  ;  a  political  design  also  to  make  the  protective  system 
unpopular  appeared  and  was  indeed  avowed,  but  the  friends 
of  protection,  in  view  of  the  higher  duties  on  many  articles, 
came  to  the  conclusion  to  support  the  bill  notwithstanding 
its  odious  features,  and  they  swallowed  the  whole  with  the 
best  grace  they  could ;  and  Webster,  after  strenuous  but 
fruitless  efforts  to  reduce  its  44  abominations,”  for  the  first 
time  in  his  life  voted  for  a  general  bill  involving  high  pro¬ 
tective  features,  claiming  that  Massachusetts,  in  spite  of  her 
protests  in  1824,  had  been  forced  into  manufactures  by  the 
policy  then  adopted,  and  that  she  now  protested  through  him 
that  her  new  investments  should  be  maintained.  All  this  is 
one  reason  for  the  name  of  this  tariff,  and  a  better  reason 
will  appear  pretty  soon. 

Aside  from  great  public  considerations  and  disasters,  the 
interest  of  this  tariff  turns  mainly  on  the  man  whose  name 


558 


POLITICAL  ECONOMY. 


has  just  been  mentioned.  In  his  great  speech  of  1824,  on 
the  whole  the  greatest  tariff-speech  ever  made  in  Congress  up 
to  the  present  time,  he  admitted  the  ample  protection  accord¬ 
ed  to  cottons  and  woollens  in  the  Calhoun  tariff,  and  could 
not  bring  himself  to  support  the  higher  rates  on  those  and 
other  select  products  of  the  Clay  tariff.  “It  is  understood 
that  the  present  existing  duty  operates  pretty  much  as  a  pro¬ 
hibition  over  those  classes  of  cotton  fabrics  to  ichich  it  applies. 
The  proposed  alteration  ivould  probably  enable  the  American 
manufacturer  to  commence  competition  with  higher  priced  fab¬ 
rics;  and  so  would,  perhaps ,  an  augmentation  less  than  is 
here  proposed.  I  consider  the  cotton  manufactures  not  only  to 
have  reached ,  but  to  have  passed,  the  point  of  competition.  I 
regard  their  success  as  certain ,  and  their  groivth  as  rapid  as 
the  most  impatient  could  well  expect.  If,  hoivever ,  a  provision 
of  the  nature  of  that  recommended  here,  were  thought  neces¬ 
sary  to  commence  new  operations  in  the  line  of  the  same  manu¬ 
facture,  I  should  cheerfully  agree  to  it,  if  it  tvere  not  at  the 
cost  of  sacrificing  other  great  interests  of  the  country.  I  need 
hardly  say,  that,  whatever  promotes  the  cotton  and  woollen 
manufactures  promotes  most  important  interests  of  my  con¬ 
stituents .”  The  Clay  tariff  passed  nevertheless  ;  and  now  in 
1828,  Webster  supports,  though  reluctantly,  a  bill  adding 
enormously  to  the  rates  of  1824  on  wool,  woollens,  cottons, 
hemp,  flax,  glass,  molasses  (indirectly) ,  and  a  few  other  pet 
articles.  The  subtle  device  of  the  minimums  had  free  play 
and  broad  scope  in  this  tariff  of  Abominations.  Webster 
was  now  in  the  Senate.  His  speech  was  much  shorter  than 
that  of  1824,  as  befitted  the  place,  and  was  confined  in  large 
part  to  indignant  protests  against  certain  features  of  the  bill, 
particularly  the  molasses  tax.  As  he  always  had  this  speech 
printed  in  all  editions  of  his  works  next  after  that  of  1824, 
as  if  to  provoke  comparison  between  them,  it  is  certain,  that 
he  was  not  conscious  of  any  great  defection  in  it  from  for¬ 
mer  principles  avowed ;  and  although  he  then  and  afterwards 
brought  forward  in  defence  of  protection  arguments  which 


UNITED  STATES  TARIFFS. 


559 


Political  Economy  pronounces  unsound,  and  although  there 
doubtless  mingled  in  with  his  motives  a  desire  to  gratify 
powerful  friends  and  constituents  who  were  directly  inter¬ 
ested  in  high  duties,  there  is  good  reason  to  believe  that  his 
departure  from  sound  principles  was  never  so  radical  as  has 
been  commonly  supposed.  He  said:  “  Tlds  subject  is  sur¬ 
rounded  by  embarrassments  on  all  sides.  Of  itself  however 
ivisely  or  temperately  treated ,  it  is  full  of  difficulties  ;  and  these 
difficulties  have  not  been  diminished  by  the  particular  frame  of 
this  bill ,  nor  by  the  manner  hitherto  pursued  of  proceeding 
ivith  it.  Those  ivho  intend  to  oppose  this  bill  under  all  circum¬ 
stances,  and  in  all  or  any  forms ,  care  not  how  objectionable  it 
now  is  or  how  bad  it  may  be  made.  Others ,  finding  their  own 
leading  objects  satisfactorily  secured  by  it,  naturally  press  for¬ 
ward,  without  staying  to  consider  deliberately  how  injuriously 
other  interests  may  be  affected.  Sir,  let  us  look  for  a  moment 
at  this  molasses  tax.  This  tax  is  to  be  kept  in  the  bill,  in 
order  that  New  England  may  be  made  to  feel.  Let  gentlemen 
assign  their  motives  for  thus  taxing  their  own  constituents  as 
well  as  the  people  of  New  England,  and  abide  their  judgment ; 
but  do  not  let  them  flatter  themselves  that  New  England  cannot 
pay  a  molasses  tax  as  long  as  North  Carolina  chooses  that  such 
a  tax  shall  be  paid.” 

The  duties  under  this  tariff  averaged  about  43%  on  dutia¬ 
ble  goods,  and  about  37%  of  the  value  of  the  entire  imports. 
Both  the  debate  and  the  operation  of  the  bill  stirred  up 
passions  from  one  end  of  the  country  to  the  other.  It  is  a 
tariff  of  abominations,  because  it  stands  prominent  in  the 
line  of  the  direct  causes  of  the  late  civil  war.  The  planting 
States,  on  which  the  burden  of  these  duties  chiefly  fell,  dis¬ 
covered  a  deep  discontent ;  the  speeches  of  members  from 
the  South  forewarned  of  this  discontent,  while  the  bill  was 
still  pending ;  and  after  it  passed,  this  feeling  became  per¬ 
vading,  and  left  a  large  section  of  the  Union  under  the 
painful  belief  that  they  were  injured  and  oppressed  by  this 
branch  of  federal  legislation.  Calhoun,  then  Vice-President, 


560 


POLITICAL  ECONOMY. 


had  hoped  that  President  Jackson  would  co-operate  with  him 
to  bring  the  protective  system  to  an  end  ;  but  that  hope 
failing  for  political  reasons,  he  betook  himself  for  a  remedy 
to  the  Sovereignty  of  the  States,  and  developed  and  main¬ 
tained  till  the  day  of  his  death  those  doctrines  of  Nullifica¬ 
tion  and  Secession,  which  were  only  wiped  out  in  the  bicod 
of  the  late  war.  Many  considerate  men  in  other  sections  of 
the  Union,  who  had  been  friendly  to  the  protective  polity, 
seeing  in  the  light  of  these  debates  that  it  is  impossible  in 
the  nature  of  things  that  one  home  product  can  be  44  encour¬ 
aged  ”  by  a  tariff  without  a  corresponding  4  4  discouragement  ’  * 
of  other  home  products,  determined  to  change  their  course 
after  the  inpending  presidential  election  should  be  over. 

5.  The  reader  has  doubtless  noticed,  that  the  tariffs  so  far 
treated  followed  pretty  closely  the  years  of  the  presidential 
elections.  The  last  two  tariffs  particularly  were  all  mixed 
up  with  president-making.  So  again  in  1832,  Clay  went 
into  the  national  canvass  against  Jackson  on  the  avowed 
platform  of  high  protective  duties.  He  was  beaten.  The 
country  seemed  to  indicate  its  preference  for  a  different 
system ;  even  before  that  election  took  place,  a  tariff  bill 
had  been  passed  (July,  1832),  characterized  by  Appleton  of 
Massachusetts  4  4  a  sa  fair  compromise ,  as  a  harbinger  of  peace , 
and  of  reduced  excitement ;  ”  soon  after  the  election,  Verplanck 
of  New  York,  chairman  of  the  Committee  of  Ways  and 
Means,  reported  a  bill  which  divested  the  tariff  of  most,  if 
not  all,  of  its  protective  features,  which  reductions  would 
have  gone  into  effect  all  at  once  in  case  the  bill  had  passed  ; 
and  under  these  circumstances  Clay  himself  brought  forward 
in  the  Senate  a  bill,  as  an  olive  branch  to  the  South,  which 
soon  became  the  Compromise  Tariff  of  1833.  Clay  and 
Calhoun  were  not  then  on  speaking  terms,  but  the  latter 
was  consulted  through  a  third  party,  and  agreed  to  regard 
the  former’s  plan  as  a  satisfactory  arrangement  of  the  tariff 
controversy,  and  both  spoke  and  voted  for  the  bill,  which 
passed  just  in  time  to  prevent  the  impending  collision  between 


UNITED  STATES  TARIFFS. 


561 


South  Carolina  and  the  general  government.  Webster  op¬ 
posed  the  bill,  as  a  practical  abandonment  of  protection, 
both  by  a  series  of  resolutions  and  also  by  argument  and 
vote ;  but  it  passed  the  Senate  29  to  16,  and  the  House  119 
to  85.  The  bill  adopted  a  sliding  scale  in  reference  to  all 
duties  over  20%  in  the  bill  of  1832,  providing  for  their 
gradual  reduction  on  each  alternate  year  till  1842,  when  and 
thereafter  the  rate  on  all  these  goods  should  be  20%  on  the 
home  valuation.  This  was  what  is  called  a  “horizontal 
tariff,”  and  it  is  not  a  good  kind,  for  it  disregards  discrimi¬ 
nations  as  to  the  rate  on  each  article  which  will  yield  the 
most  revenue  to  government  with  the  least  burden  to  each 
buyer.  The  horizontal  principle  implies  ad  valorem  duties 
only,  and  disregards  equally  the  claims  of  revenue,  free 
trade,  and  protection.  Free  trade  demands  that  every  tax 
in  a  tariff  shall  be  levied  for  revenue  only,  and  so  levied  that 
the  treasury  shall  get  all  that  the  people  are  made  to  pay. 
Protection  demands  that  the  people  pay  a  great  deal  more 
than  the  treasury  gets,  and  the  more  the  better.  Calhoun 
did  not  like  the  “home  valuation”  clause,  which  of  course 
increased  the  duties  ;  but  he  and  his  friends  made  no  intelli¬ 
gent  fight  for  free  trade,  and  complicated  their  position 
besides  with  doubtful  constitutional  questions.  However, 
under  the  Compromise  Tariff  the  taxes  were  slowly  but 
decidedly  lowered,  and  averaged  between  1833  and  1842 
about  32%.  All  sections  believed  the  tariff-controversy 
settled,  the  country  was  prosperous,  agriculture  was  extend¬ 
ing,  almost  no  tariff  could  swamp  our  industries,  and  cei- 
tainly  not  one  which  largely  threw  off  taxes. 

6.  Bank  questions,  inflation,  internal  improvements,  the 
consequent  crash  of  1837,  and  the  hard  times  following, 
occupied  the  public  mind  for  a  number  of  years  and  brought 
the  Whigs  into  power  through  the  election  of  1840.  The 
Whigs  believed  in  broad  functions  of  government.  They 
advocated  the  paternal  theory  of  public  administration. 
They  were  a  party  of  privilege.  As  the  writer  remembers 


562 


POLITICAL  ECONOMY. 


very  well,  extravagant  expectations  were  held  out  in  the  log- 
cabin  and  hard-cider  campaign  of  1840,  that,  if  Harrison 
were  elected,  times  would  change  and  the  rich  take  care  of 
the  poor  and  the  golden  age  come  in.  Precisely  how  all  this 
was  to  be  brought  about,  was  not  clear  even  to  the  minds  of 
the  orator  and  song- writer  of  that  day,  and  still  less  to  the 
minds  of  the  masses  surging  in  reaction  from  the  party 
under  whose  administration  the  financial  crisis  had  happened. 
The  Whigs  were  not  unanimous  for  going  back  to  high  pro¬ 
tective  taxes,  and  the  Democrats  were  not  unanimous  in 
their  adherence  to  the  principles  of  the  Compromise  Tariff. 
Said  Clay,  the  Whig  leader  in  the  extra  session  of  1841 : 
“  Carry  out  the  principles  of  the  Compromise  act.  Look  to 
revenue  alone  for  the  support  of  government.  Do  not  raise 
the  question  of  protection ,  which  I  hoped  had  been  put  to  rest: 
there  is  no  necessity  for  protection .”  On  the  other  hand 
Benton  of  Missouri  and  Wright  of  New  York,  both  Demo 
cratic  leaders  in  the  front  rank,  of  whom  the  former  had 
voted  against  the  Compromise  and  the  latter  was  soon  to 
vote  for  the  tariff  of  1842,  disagreed  as  to  policy.  Under 
these  perplexing  circumstances,  Harrison  dead  and  Tyler  a 
free  trader,  there  was  passed  the  Whig  Tariff  of  1842.'  The 
state  of  public  opinion  did  not  warrant  at  all  the  going  back 
to  the  high  rates  of  1832  ;  but  the  manufacturers  must  have 
something  to  reward  them  for  their  efforts  in  the  campaign, 
and  the  iron  men  particularly  secured  high  duties  on  iron 
products  of  all  kinds ;  and  so,  much  capital  and  many 
laborers  were  seduced  as  usual  into  those  branches  which 
promised  factitious  rewards,  and  when  the  duties  were  soon 
after  removed,  thousands  of  persons  were  pecuniarily  ruined. 
It  is  impossible  to  speak  in  terms  too  deprecatory  of  an  arti¬ 
ficial  system  which  inveigles  capital  and  labor  into  branches 
of  business  into  which  they  would  never  have  embarked  of 
their  own  accord.  Nature  alone  is  stable.  The  Whig  tariff 
was  not  expected  to  last ;  and  it  only  lasted  four  years.  The 
average  of  duties  on  the  entire  imports  was  carried  up  from 


UNITED  STATES  TARIFFS. 


563 


16%  under  the  Compromise  to  about  23%,  and  on  dutiable 
goods  from  32%  to  33%.  The  Whig  tariff  was  only  an 
eddy  in  the  now  pretty  steady  stream  towards  commercial 
freedom. 

7.  There  was  an  animated  debate  in  the  Senate  during  the 
spring  of  1844,  in  which  Benton  took  the  leading  and  ablest 
part,  in  the  course  of  which  Wright  acknowledged  his  mis¬ 
take  of  two  years  before  and  McDuffie  agreed  that  something 
better  than  the  Compromise  was  now  needed,  which  showed 
clearly  in  general  the  direction  in  which  the  intellect  of  the 
country  was  moving.  It  was  a  debate  merely  :  no  one  pro¬ 
posed  to  undo  the  Whig  tariff  until  after  the  presidential 
election  of  the  autumn :  Clay  was  again  the  candidate  of 
the  protectionists,  and  the  canvass  turned  largely  on  that 
question :  he  was  beaten  the  second  time,  and  the  way  was 
now  open  for  a  liberal  tariff  framed  on  sounder  principles. 
Polk’s  Secretary  of  the  Treasury  was  Walker  of  Mississippi. 
His  principles  and  policy  were  in  keeping  with  the  tone  of 
the  public-  mind  both  in  this  country  and  in  Great  Britain. 
The  year  1846  is  memorable  in  the  history  of  economic 
legislation :  it  was  the  year  of  the  repeal  of  the  Corn-laws 
of  England  ;  it  was  the  year  of  the  famous  free  trade  Report 
of  our  Secretary  of  the  Treasury,  which  was  reprinted  for 
circulation  by  the  British  House  of  Commons  ;  and  it  was 
the  year  of  the  Walker  Tariff  for  the  United  States.  The 
repeal  of  the  English  corn-laws  opened  up  a  new  market  for 
our  agricultural  produce  ;  the  Sub-Treasury  act  was  passed 
the  same  year,  which  removed  the  subjects  of  money  and 
banking  from  our  national  legislation ;  and  it  was  then 
commonly  supposed  that  the  subject  of  “protection”  also 
was  substantially  settled  for  this  country  as  well  as  Great 
Britam,  for  we  were  keeping  at  least  even  step  with  our 
British  cousins  to  the  music  of  a  Free  Commerce. 

The  key-note  of  the  Walker  Tariff  was  struck  in  the  House 
by  Jones  of  Georgia  :  “  Sir,  the  example  of  Sir  Robert  Peel 
in  the  modification  of  the  corn-laws  ought  to  speak  in  language 


564 


POLITICAL  ECONOMY. 


stronger  than  any  argument  I  can  use.  We  copied  this  system 
of  protection  from  England;  England  has  found  it  ruinous  to 
her  people  of  every  class;  she  in  her  wisdom  has  abandoned 
it;  and  are  we  in  our  folly  still  to  cling  to  it?  Sir  Robert  Peel 
was  formerly  a  lory ;  he  ivas  brought  into  power  by  the  tory 
interest ,  by  the  landholders ,  to  protect  their  interests .  With  a 
noble  magnanimity  he  preferred  the  interests  of  the  country  to 
those  of  a  class;  he  has  abandoned  the  interests  of  the  land- 
proprietors,  and  espoused  the  cause  and  the  interests  of  the 
com  dry.  Would  to  God  there  were  some  Sir  Robert  Peels  in  an 
American  Congress ,  who  would  abandon  the  interests  of  a  class , 
and  take  the  interests  of  the  country  for  their  guided 9  The 
Bill  passed  the  House  by  a  vote  of  114  to  95,  and  reduced 
duties  down  to  about  the  standard  of  the  ‘  ‘  Compromise  ’  *  of 
1833,  although  it  discriminated,  as  the  Compromise  did  not, 
between  goods  that  could  be  produced  at  home  and  those  that 
could  not.  In  short,  it  approached  in  its  principles  and  de¬ 
tails  more  nearly  to  the  Hamilton  tariff  than  any  other  before 
or  since,  though  the  general  rate  of  duties  in  it  was  higher. 
It  applied  the  ‘  ‘  horizontal  ’  ’  principle  within  certain  pre¬ 
scribed  schedules,  but  not  to  the  imports  as  a  whole.  Walker 
understood  the  principle,  that  lower  taxes  are  apt  to  yield 
higher  revenues,  but  the  yield  of  his  tariff  surprised  even 
him.  In  1846,  it  was  estimated  to  furnish  $20,000,000  a 
year:  it  actually  furnished  $60,000,000  in  1856.  Indeed, 
the  revenue  rose  beyond  the  legitimate  needs  of  the  govern¬ 
ment,  and  large  sums  from  the  surplus  were  expended  in 
buying  up  bonds  not  yet  due  at  a  high  premium  for  the  sake 
of  emptying  the  Treasury.  Consequently,  reductions  were 
made  in  1857,  which  lowered  the  duties  about  one-quarter, 
and  applied  remissions  to  the  raw  materials  of  manufactures 
and  enlarged  the  free  list.  The  West  did  not  like  the  les¬ 
sened  duties  on  wool  and  hemp  and  lead  produced  there,  and 
declaimed  against  the  “incidental  protection”  accorded  to 
Eastern  manufacturers  through  the  free  list  and  lower  duties 
on  materials.  There  was  indeed  sharp  practice  in  that  direc- 


UNITED  STATES  TAB  [FES. 


565 


tion  at  that  time.  So  it  goes.  So  long  as  there  is  any  “  pro¬ 
tection”  whatever,  somebody  will  be  justly  roused  by  its 
inherent  injustice.  Though  the  national  government  had 
now  nothing  to  do  with  banking  and  paper  money,  the  States 
had  unduly  multiplied  their  banks,  and  the  banks  had  unduly 
multiplied  their  bills,  the  whole  credit-system  became  unduly 
extended,  and  the  inevitable  crash  of  credits  came  in  the 
autumn  of  1857,  the  imports  of  course  fell  off,  the  revenue 
was  diminished,  and  a  part  of  the  blame  for  this  bad  state 
of  things  was  foolishly  cast  on  the  contemporaneous  letting- 
up  of  customs  taxation. 

As  showing  the  drift  of  public  opinion,  and  as  proving 
that  the  United  States  were  quite  as  advanced  in  1858  as 
Great  Britain  itself  in  the  march  towards  commercial  free¬ 
dom,  and  also  as  indicating  that  the  leading  men  in  Con¬ 
gress  believed  that  the  remissions  of  1857  were  in  the  line 
of  progress  and  prosperity,  we  quote  a  remarkable  series  of 
Resolutions  reported  by  the  majority  of  a  special  congres¬ 
sional  committee  (only  two  members  dissenting)  in  the  year 
1858.  At  that  time  the  Walker  Tariff  of  184G  had  been 
running  for  12  years,  and  diffusing  the  blessings  of  a  partial 
free  trade.  The  Resolutions  call  for  “ more ”  in  the  same 
direction  —  very  much  more.  They  even  call  for  an  entire 
abolition  of  customs  duties,  and  a  resort  exclusively  to 
direct  taxation.  One  of  the  names  appended  to  these  strong 
Resolutions  was  that  of  F.  E.  Spinner  of  New  York,  with 
whose  peculiar  chirography  as  Treasurer  of  the  United  States 
the  nation  became  afterwards  amusingly  familiar.  Here  are 
the  Resolutions : 

1.  Resolved,  That  the  vast  and  increasing  expenditure  of 
the  Federal  Government  indicates  the  necessity  of  a  change  in 
our  fiscal  system ,  whereby  the  protective  policy  shall  be  entirely 
abandoned ,  and  a  resort  had  at  as  early  a  period  as  may  be 
practicable ,  exclusively  to  direct  taxation. 

2.  Resolved,  That  the  existing  tariff  is  defective ,  as  being 
founded  on  the  protective  policy ;  as  taxing  certain  articles  of 


566 


POLITICAL  ECONOMY. 


prime  necessity  too  high;  as  not  discriminating  sufficiently  so 
as  to  throw  the  burden  of  taxation  as  much  as  possible  on 
articles  of  luxury ,  to  the  exemption  of  articles  of  necessity, 
and  as  placing  certain  articles  on  the  free  list  which  should 
pay  duty ;  and  that  any  modifications  of  the  tariff  which  may 
be  made ,  should  be  made  so  as  to  avoid  these  defects,  and  for 
the  purpose  of  using  the  tariff  merely  as  a  fiscal  instrumen¬ 
tality. 

3.  Resolved,  That  the  highest  development  of  the  industrial 
resources  of  the  country  is  to  be  attained  by  the  greatest  free¬ 
dom  of  exchanges,  which  can  only  be  thoroughly  accomplished 
by  the  entire  abolition  of  duties  on  imports ,  and  a  resort 
exclusively  to  direct  taxation. 

4.  Resolved,  That  the  system  of  direct  taxation  presenting 
the  most  advantages  is,  for  each  State  to  collect  and  pay  ovei 
its  quota,  to  be  ascertained  by  the  constitutional  rule  of  appor¬ 
tionment,  thus  insuring  perfect  equality,  and  dispensing  with 
multitudes  of  federal  officers. 

5.  Resolved,  That  the  navigation  laws  should  be  so  modi¬ 
fied  as  not  to  require  any  portion  of  the  officers  and  crews  of 
American  ships  to  be  American  citizens,  and  that  American 
citizens  shall  be  free  to  purchase  and  sail  foreign  built  ships 
on  an  entire  equality  with  American  built  ships,  and  that  the 
American  coasting  trade  shall  be  open  on  terms  of  perfect 
equality  to  foreign  ships. 

Although  the  revenue  recovered  somewhat  in  1859  from 
the  effects  of  the  severe  commercial  crisis  of  two  years 
before,  and  recovered  still  more  the  next  year,  profound 
political  troubles  were  then  beginning,  the  thoughts  of  the 
people  were  utterly  turned  away  from  tariffs  and  other  modes 
of  taxation  to  Slavery  and  its  intentions  and  encroachments, 
the  expenses  of  the  government  were  increased  by  the  pros¬ 
pects  ahead,  and  there  came  of  course  a  deficit  of  income  in 
relation  to  expenditures.  The  tariff  duties  on  the  whole 
imports  under  the  Walker  tariff,  184G-61,  averaged  only 
18%,  and  on  the  dutiable  goods  only  23%. 


UNITED  STATES  TARIFFS. 


567 


8.  We  come  now  to  the  Morrill  Tariff  of  1861,  which  waa 
still  in  force  in  1883.  This  designation  includes,  like  the 
previous  ones,  all  the  various  supplements  and  modifications 
passed  in  accordance  with  the  leading  idea  of  the  original 
Act.  The  ground  thought  of  the  Morrill  Tariff  in  its  history 
as  a  whole  was,  not  to  get  money  for  the  uses  of  the  govern¬ 
ment,  ‘  ‘  to  pay  the  debts  and  provide  for  the  common  defence 
and  general  welfare  of  the  United  States,”  but  to  get  money 
through  artificial  prices  of  their  wares  for  certain  privileged 
classes  of  the  citizens.  There  was  a  mildly  drawn  resolution 
in  the  platform  of  the  party  that  triumphed  in  1860  in  favor 
of  what  is  called  “  protection  ;  ”  it  was  a  bid  for  the  political 
support  of  Pennsylvania ;  little  or  nothing  was  said  upon 
that  subject  in  the  canvass  ;  and  the  people  pronounced  in 
their  verdict  on  a  different  set  of  questions  from  those  in¬ 
volved  in  a  protective  tariff.  Seven  Southern  States  had 
seceded,  when  the  bill  passed  the  Senate  in  February ;  the 
need  of  more  revenue  was  imperative  ;  there  was  no  intelli¬ 
gent  agreement  as  to  the  means  by  which  more  revenue  could 
be  obtained  ;  the  existing  duties  were  raised  at  first  about 
one-third  ;  in  August  they  were  raised  again,  and  members 
seized  the  opportunity  of  discriminating  in  favor  of  articles 
in  which  they  were  interested  to  the  extent  of  diminishing 
revenue  by  duties  which  lessened  importations.  In  view  of 
such  a  war  as  that  then  impending,  the  relevant  questions 
were,  How  can  we  get  the  most  revenue  with  the  least  inter¬ 
ference  with  the  industries  of  the  people?  and,  How  can  wo 
distribute  the  tariff-taxes  so  as  to  burden  the  whole  people  a3 
equally  as  possible  ?  If  these  questions  alone  had  influenced 
the  representatives  of  the  people,  the  Morrill  Tariff  would 
never  have  been  heard  of.  It  was  a  clouded  thought,  hover¬ 
ing  in  many  patriotic  minds,  that  what  they  knew  would  be 
immediately  and  immensely  beneficial  to  some  of  their  con¬ 
stituents  would  not  after  all  be  very  harmful  to  the  country 
at  large,  that  carried  through  the  tariff  of  1861.  But  it  was 
harmful  to  the  country  at  large  in  a  high  degree.  Enlight- 


568 


POLITICAL  ECONOMY. 


ened  public  opinion  abroad  turned  more  or  less  against  the 
country  in  consequence ;  the  people  were  obliged  to  pay 
nearly  or  quite  double  on  some  of  the  necessaries  of  life 
what  the  goods  were  worth  in  a  free  market ;  some  of  them 
lost  also  their  best  chance  of  selling  a  part  of  the  products 
of  their  industry ;  unusual  inequality  of  fortune  soon  ap¬ 
peared  among  the  citizens  ;  while  the  duties  were  put  so  high 
that  nothing  like  the  revenue  was  received  from  them  that 
might  have  been  received.  With  a  much  larger  revenue  in 
gold,  a  people  obtaining  their  cloths  and  iron  and  similar 
goods  at  something  near  European  or  Canadian  prices,  and 
general  industry  going  forward  under  its  natural  conditions, 
the  credit  of  the  government  would  not  have  sunk  so  low  as 
unfortunately  it  did  sink.  The  new  tariff  was  not  honestly 
adjusted  for  purposes  of  revenue,  and  while  it  seemed  to 
concede  something  in  its  free  list  to  the  demand  for  free 
trade,  the  concession  was  largely  delusive,  since  many  of  the 
articles  thus  admitted  free  of  duty  went  into  manufactures 
protected  by  higher  duties  than  were  ever  before  levied  in 
this  country.  To  put  articles  on  a  free  list  is  of  itself  no 
boon  to  free  trade ;  it  depends  upon  the  purpose  for  which 
they  are  put  there  ;  whether  to  benefit  the  whole  people  or 
only  a  few  persons  at  the  expense  of  the  whole  people.  In 
all  our  recent  tariff-legislation  there  is  many  a  snare  for  the 
unwary. 

It  is  not  needful  for  our  present  purpose  to  give  an  account 
in  detail  of  the  various  changes  made  from  time  to  time  in 
the  Morrill  Tariff.  A  single  specimen  of  the  inequalities  of 
which  that  tariff  was  full  to  a  surfeit  may  be  given  here  by 
way  of  illustration.  Ex  uno  disce  omnes.  A  supplemental 
act  that  went  into  operation  on  the  10th  of  August,  1866, 
provides,  for  the  sake  of  increasing  the  duties,  that  the  costs 
of  transportation,  shipment,  commission,  brokerage,  and  all 
similar  charges,  be  added  to  the  invoice  value  of  imports  to 
make  up  the  value  on  which  the  duties  shall  be  levied.  This 
applies  to  all  dutiable  imports,  except  to  long-combing  or  car - 


UNITED  STATES  TARIFFS. 


569 


pet  wools  costing  twelve  cents  or  less  per  pound.  Why  were 
they  excepted?  Cannot  the  carpet  manufacturers  pay  duties 
as  well  as  other  people  ?  They  have  had  a  very  high  protec¬ 
tive  duty  on  their  own  completed  product.  They  compelled, 
through  Congress,  everybody  to  pay  this  duty  on  foreign  car¬ 
pets,  and  carried  up  the  price  of  their  own  in  proportion  ;  and 
yet  this  tariff  exempted  their  raw  material  from  an  increase 
of  duty  applied  to  all  other  dutiable  goods  whatsoever  !  Ten 
days  before  this  clause  went  into  effect,  the  Hartford  Carpet 
Company  declared  a  semi-annual  dividend  of  20  %  ;  and  its 
shares  were  announced  as  worth  $275  each,  with  the  divi¬ 
dend  off. 

'  On  an  actual  count  of  the  number  of  distinct  rates  as¬ 
sessed  on  different  articles  listed  in  the  tariff  in  1868,  the 
number  was  found  to  be  2,317  ;  and  the  following  articles 
actually  paid  the  following  rates  of  duty  per  centum  of  the 
value  of  the  articles  in  that  year  :  — 


Per  Cent. 

Common  window  glass ...  49 


Pig  iron . 55 

Bar  iron . 07 

Cast  iron  pipe . 109 

Wood  screws . 66 

Carpenter  squares  ....  82 

Sheet  lead  and  pipe  ....  54 

Lead  pencils . 60 

Plain  cottons . 58 

Spool  cotton . 66 


Per  Cent. 

Gunny  cloth . 81 

White  marble . 57 

Veined  marble . 79 

Salt  in  bags . 81 

Salt  in  bulk . 108 

Scoured  wool . 94 

Washed  wool . 121 

Blankets  (average)  ....  82 

Carpets  (average) . 109 

Paris  white . 285 


The  average  duty  on  dutiable  goods  in  1868  was  47.86%. 
The  first  considerable  reduction  in  the  Morrill  tariff  took 
effect  Jan.  1,  1871,  and  threw  off  taxes,  as  compared  with 
1869,  to  the  extent  of  $26,054,748;  but  it  threw  them  off 
mainly  from  the  revenue,  aud  not  from  the  protective,  parts 
of  the  tariff:  for  example,  77%  of  all  this  reduction  was 
from  tea,  coffee,  cocoa,  sugar,  and  molasses ;  articles,  all 
the  taxes  on  which  go  to  government,  and  directly  raise  the 


570 


POLITICAL  ECONOMY. 


price  of  nothing  else.  Precisely  those  articles,  therefore, 
are  the  ones  to  bear  a  heavy  tax. 

In  October,  1871,  occurred  the  great  fire  in  Chicago.  In 
the  winter  following,  a  bit  of  legislation  took  place  in  Con¬ 
gress  in  consequence,  which  is  too  instructive  to  be  passed 
by  without  notice.  A  bill  was  enacted  to  last  one  year  only, 
receiving  the  signature  of  President  Grant  on  April  5,  1872, 
to  exempt  all  building  materials  except  lumber  from  the  op¬ 
eration  of  tariff  taxes  for  the  benefit  of  Chicago  alone.  This 
was  an  emphatic  confession  on  the  part  of  Congress  that  tariff 
taxes  raise  the  prices  of  protected  goods,  and  that  the  remis¬ 
sion  of  such  taxes  lowers  the  prices  of  the  goods  But  why 
was  lumber  excepted  from  the  bounty  of  the  legislators  to  the 
unfortunates  of  Chicago?  Because,  while  the  bill  was  still 
pending,  a  special  car  filled  with  the  lumber  lords  of  Michi¬ 
gan  and  Wisconsin  was  rolled  to  Washington  in  haste,  and 
the  potent  influence  of  these  men  was  sufficient  to  cause  the 
express  exemption  of  their  product  from  the  intended  cheap¬ 
ening  (for  one  year)  of  the  building  materials  for  Chicago. 
The  brief  official  record  of  this  curious  transaction  will  be 
found  in  U.  S.  Statutes  for  1872,  page  33. 

Congress  did  not  dare  to  go  into  the  presidential  election 
of  1872  with  the  tariff  as  it  was,  especially,  as  public  opinion 
had  been  roused  against  some  of  its  more  iniquitous  features  ; 
and  accordingly,  in  that  summer,  the  duties  were  thrown  off 
entirely  from  tea  and  coffee,  a  large  number  of  previously 
taxed  articles  were  put  upon  the  free  list,  the  duties  on  salt 
and  pig  iron  were  reduced,  and  a  general  reduction  of  10% 
put  on  most  other  protected  articles.  But  the  last-named 
reduction  was  restored  by  the  “little  tariff  bill”  two  years 
later.  3 he  purely  revenue  taxes  on  tea  and  coffee  were 
thrown  off  under  protectionist  leadership,  in  order  to  give 
color  to  the  claim  of  retaining  the  protective  taxes  for  the 
sake  of  revenue !  The  deceptive  cry  was  raised,  by  Kelley 
of  Pennsylvania  and  other  protectionists,  of  “a free  break - 
fas*-+ahle”  in  the  subtle  interest  of  commercial  bondage; 


UNITED  STATES  TARIFFS. 


571 


seeking  to  give  the  impression,  on  the  one  hand,  that  every 
thin'g  on  the  breakfast-table  was  to  be  free,  whereas  nothing 
on  it  or  around  it  was  to  be  free  except  the  two  beverages 
mentioned,  and  on  the  other  hand,  that  the  removal  of  these 
two  taxes  was  a  great  boon  to  the  people,  whereas  the  motive 
for  the  removal  of  these  was  to  continue  on  the  people  bur¬ 
dens  tenfold  heavier.  The  duty  on  raw  hides  was  also  re¬ 
moved  at  the  same  time,  and  the  removal  of  duties  leads  at 
once  to  increased  trade.  For  example,  our  whole  import  and 
export  trade  with  Venezuela  amounted  to  only  $3,345,145  in 
1870.  That  Republic  sends  us  nothing  of  consequence  but 
coffee  and  hides,  both  dutied  in  that  year.  In  1876,  our 
trade  with  that  country  amounted  to  $9,299,993,  an  increase 
of  nearly  200%.  The  increase  of  the  import  of  coffee  and 
hides  between  those  dates  was  over  320%.  The  increase  of 
our  shipping  in  the  Venezuela  trade  in  the  same  time  was 
from  15  to  134  vessels,  from  a  tonnage  of  2,571  to  43,459 
tons,  and  from  109  hands  to  1,255  hands.  All  this  by  free¬ 
ing  two  articles  only,  one  of  which  ought  still  to  be  taxed. 
Some  of  the  indirect  results  of  just  a  little  freedom  are 
seen  in  the  increase  of  our  exports  of  tanned  leather  from 
$2,864,000  in  1872  under  taxed  hides,  to  $7,940,010  in  1876 
under  free  hides. 

The  average  duties  on  dutiable  goods  in  the  fiscal  year 
1874  were  38.50%  ;  but  many  of  the  tariff  rates  were 
decidedly  raised  in  February  and  March  of  the  next  year ; 
so  that,  any  one  may  still  read  in  an  official  copy  of  the 
tariff,  among  many  other  and  higher  and  more  complicated 
rates,  of  60  different  articles  put  in  at  that  time  at  60%. 
But  there  were  some  remissions  also  and  improvements  in 
the  years  thereabouts.  Quinine,  which  had  borne  20%,  in 
the  prospect  of  yellow  fever  at  the  South  and  in  disgust 
at  the  price  of  a  medicine  in  universal  use  kept  factitious 
for  the  benefit  of  a  single  firm  in  Philadelphia,  was  put  up 
on  the  free  list ;  the  price  shortly  settled  to  a  point  quite 
below  what  might  have  been  expected  from  the  mere  remis- 


572 


POLITICAL  ECONOMY. 


sion,  and  in  1883  it  had  fallen  more  than  one-half ;  there 
were  then  five  firms  making  the  article  from  the  free  material, 
instead  of  one  firm  under  the  taxed  material ;  the  House 
Committee  of  Ways  and  Means  in  their  tariff  bill  of  1883 
put  in  a  duty  of  10 °J0  again  on  quinine,  but  after  an  indig¬ 
nant  burst  of  eloquence  on  the  floor  from  McKensie  of  Ken¬ 
tucky,  author  of  the  free  quinine  bill,  the  House  struck  out 
the  item  by  a  vote  of  108  to  57  ;  and  the  hope  may  now  be 
indulged  that  a  free  people  may  hereafter  be  permitted  to 
nurse  their  aches  and  agues  with  a  free  quinine.  The  Reci¬ 
procity  Treaty  with  the  Sandwich  Islands  was  another  step 
in  the  right  direction  taken  at  about  the  same  time.  Our 
exports  to  those  islands  were  only  $655,174  in  1875,  but 
rose  under  the  treaty  to  $3,272,172  for  the  fiscal  year  1881— 
82.  Our  imports  also  from  the  islands  grew  during  that 
period  from  $1,227,191  to  $7,646,294. 

These  little  points  of  light  serve  the  better  to  display  the 
blackness  of  darkness  of  the  Morrill  Tariff  as  a  whole.  The 
bulk  of  the  rates  continued  monstrously  high  and  mon¬ 
strously  complicated.  In  1882,  the  following  articles  actually 
paid  the  following  rates  of  duty  :  — 


Per  Cent. 


Cleaned  rice . 95 

Epsom  salts . 78 

Chiccory . 102 

Spool  thread . 77 

Common  window  glass  ...  66 
Band  and  hoop  iron  ....  75 
Horseshoe  nails . 98 


Per  Cent. 

Boiler  plates . 69 


Locomotive  tires . 79 

Steel  rails . 99 

Balmoral  alpaca . 91 

Blankets . 89 

Woollen  hosiery . 100 

Bunting . 121 


If  it  be  said,  that  the  Morrill  Tariff  was  very  productive 
cf  revenue,  that  may  be  admitted,  for,  of  course,  if  the 
people  continue  to  trade  at  all,  such  a  tariff  must  be  produc¬ 
tive,  s  lice  something  near  to  half  the  value  of  the  dutiable 
goods  imported  goes  to  government !  To  say  that  such  a 
tariff  is  productive  is  only  to  say  that  it  is  hard  work  to 
destroy  the  commerce  of  a  great  people !  The  question  is, 


UNITED  STATES  TARIFFS. 


573 


would  not  a  reasonable  system  be  even  more  productive  ?  At 
present,  the  government  indeed  gets  much ;  but  the  people 
pay  a  great  deal  more ;  inasmuch  as  the  ground-thought  of 
the  whole  system  is  to  raise  the  price  of  favored  domestic 
products  through  the  tariff-taxes  on  corresponding  foreign 
products.  Some  of  these  taxes  exclude  the  foreign  product 
entirely :  in  this  case,  the  people  pay  much,  and  government 
gets  nothing.  In  other  cases,  the  people  are  made  to  pay 
five,  and  even  ten,  times  as  much  in  consequence  of  a  tariff- 
tax  as  the  government  receives  from  it.  Can  such  a  system 
properly  be  called  productive  ?  In  round  millions  of  dollars 
the  record  of  customs  revenue  is  as  follows  :  — 


1861 

1862 

1863 

1864 

1865 

1866 

1867 

1868 

1869 

1870 

1871 


$39 

49 

69 

102 

85 

179 
176 
164 

180 
195 
206 


1872 

1873 

1874 

1875 

1876 

1877 

1878 

1879 

1880 
1881 
1882 


$216 

188 

163 

157 

148 

131 

130 

137 

187 

198 

220 


The  following  table  compiled  by  Philpott  of  Iowa  from 
the  national  censuses  shows  in  striking  figures  the  relatively 
slow  rate  of  progress  in  the  nation  under  the  Morrill  Tariff 
as  compared  with  the  progress  made  in  all  the  leading  lines 
under  the  Walker  Tariff.  The  comparison  lies  in  the  per 
centum  of  increase  over  the  previous  decade  in  thirteen 
essential  items  of  growth  of  the  period  1850-60  relatively 
to  each  of  the  periods  1860—70  and  1870-80.  The  average 
of  the  last  two  periods  is  taken  for  the  sake  of  an  easier 
comparison  of  the  progress  of  the  one  decade  with  the 
average  of  the  two  later  ones.  The  figures  give  the  per 
centum  of  increase  over  the  previous  decades. 


574  POLITICAL  ECONOMY. 


Lines  of  Pbogbess. 

1850-1860. 

Av’age  each  Ten 

Years  —  1860- 

1880. 

Population . 

26.2 

Wealth . 

126.6 

61.0 

Foreign  commerce,  aggregate  . . 

131.0 

45.6 

Foreign  commerce,  per  capita . 

70.3 

15.2 

Kailroads,  aggregate . 

240.0 

69.0 

Railroads,  per  capita . 

150.0 

34.0 

Capital  in  manufactures . 

90.0 

66.0 

Wages  in  manufactures,  aggregate . 

60.3 

58.2 

W ages  in  manufactures,  per  hand . 

17.3 

9.4 

Products . 

85.0 

69.6 

Value  of  farms . 

103.0 

23.6 

Farm  tools  and  machinery . 

62.0 

27.7 

Live  stock  on  farms . 

100.0 

17.3 

A  deep  dissatisfaction  with  the  Morrill  Tariff,  as  thwarting 
the  drift  of  the  previous  twenty-five  years  both  in  this 
country  and  in  Great  Britain,  spread  steadily  among  the 
people  as  its  deceits  and  burdens  were  popularly  discussed ; 
protectionist  leaders,  as  they  had  raised  the  cry  in  1872  of 
u  a  free  breakfast- table  ”  to  divert  the  public  mind  from  the 
real  issue,  so  with  the  same  intent  they  raised  in  1882  the 
cry  of  a  “Tariff  Commission;”  and  Congress  authorized, 
and  the  President  appointed,  commissioners,  each  one  of 
whom  was  a  protectionist,  and  most  of  whom  were  person¬ 
ally  connected  with  protected  industries.  Their  names  were 
mostly  unknown  to  the  country  at  the  time  of  their  appoint¬ 
ment  ;  and  some  of  their  private  correspondence  as  commis¬ 
sioners,  since  published,  is  far  from  being  to  the  credit  of 
their  integrity  or  intelligence.  One  of  them,  Kenner,  a 
representative  of  the  Louisiana  sugar  interest,  in  one  of 
these  letters,  displayed  an  unseemly  anxiety  to  establish 
through  protective  duties  an  identity  of  interest  between  the 
producers  and  adulteraters  of  sugar,  —  ‘ 4  the  mere  fact  of  our 
mentioning  your  interest  in  public  as  identical  with  ours 


UNITED  STATES  TAB  BIFFS. 


576 


creates  a  prestige  in  its  favor;  ”  and  another  of  them,  Porter, 
in  a  letter  to  Kelley,  gauged  the  calibre  of  his  own  mind  by 
a  strain  of  fulsome  adulation,  as  follows:  “  On  my  bed  lay 
a  large  package ,  which ,  on  opening ,  I  found  to  contain  that 
long-expected  and  magnificent  picture  of  yourself.  It  is  cer¬ 
tainly  superb ,  and  in  the  moment  of  ecstasy  which  followed 
its  reception ,  I  could  not  withstand  the  temptation  to  take  it 
downstairs  and  show  it  to  my  colleagues ,  who  all  agreed  that 
it  was  one  of  the  finest  photographs  of  one  of  our  strongest 
men.  I  put  it  on  my  mantel-piece  and  looked  at  it  for  a 
long  time  and  could  almost  fancy  I  was  communing  with 
you.” 

No  intelligent  person  expected  from  a  commission  so  con¬ 
stituted  any  substantial  alleviations  for  the  people  from  the 
burdens  of  the  Morrill  Tariff,  but  only  manipulations,  —  “to 
change  the  place  and  keep  the  pain.”  Their  Report  to 
Congress  wTas  a  marvel.  It  stroked  a  little  here,  and  struck 
a  little  there.  It  changed  the  classification  of  imports,  in¬ 
creased  the  free  list  in  unimportant  articles  and  in  certain 
raw  materials,  plausibly  reduced  certain  duties  which  re¬ 
mained  however  still  prohibitive,  actually  reduced  a  few 
duties  to  the  prospective  relief  of  the  people,  and  positively 
enhanced  a  number  of  taxes  over  the  old  law  especially  on 
blooms,  and  doubled  the  rates  on  washed  wools,  and  provided 
that  cow’s  hair  should  come  in  as  wool. 

Soon  after  New  Year’s,  1883,  Congress  went  to  work  in 
earnest  in  both  Houses  on  the  basis  of  the  Report  of  the 
Tariff  Commission.  Shameless  as  the  protectionist  debaters 
in  Congress  have  been  from  the  start  in  letting  it  be  plainly 
seen  that  the  sole  motive  of  their  effort  was  a  rise  of  price 
in  certain  goods,  which  their  fellow-citizens  would  be  com¬ 
pelled,  under  the  law,  to  pay,  the  late  debate  in  the  House 
was  by  far  the  most  shameless  and  avowed  in  this  respect  of 
any  that  ever  transpired  there.  In  the  last  days  of  that 
debate  all  pretence,  even  on  the  part  of  the  protectionists, 
of  any  action  for  the  good  of  the  country  at  large,  dropped 


576 


POLITICAL  ECONOMY. 


utterly  out  of  the  discourse  ;  the  old  pretences  and  disguises 
and  subterfuges  of  “  home  markets  ”  and  “  higher  wages  ” 
and  “commercial  independence,”  were  no  longer  put  for¬ 
ward,  even  in  word,  under  the  clash  of  selfish  interests  and 
in  the  eagerness  to  secure  for  their  wares  an  artificial  price, 
to  be  paid  by  their  countrymen ;  proposed  reductions  in 
tariff  taxes  were  fought  off,  and  in  many  cases  still  higher 
taxes  were  urged  on,  under  the  open  avowal  that,  unless 
home  prices  were  thus  stiffened  by  these  tariff  taxes,  they 
could  not  sell  their  wares  at  a  profit ;  one  honorable  member 
from  New  Jersey  brought  his  pottery  wares  upon  the  floor  of 
the  House,  and  tried  to  demonstrate  to  his  fellow-members 
that,  unless  these  veiy  goods  were  artificially  raised  in  price 
by  “  protective”  tariff  rates,  which  should  shut  out  foreign 
competition,  he  could  no  longer  tread  his  clay  and  work  his 
wheels  to  a  profit  to  himself ;  in  other  words,  he  and  others, 
like  circumstanced,  persuaded  Congress  to  pass  laws  com¬ 
pelling  their  countrymen  to  hire  them  to  carry  on  unprofitable 
branches  of  business  (as  they  alleged) ,  by  giving  them  more 
for  their  products  than  similar  goods  were  confessed  to  be 
worth  in  an  open  market ;  and  the  same  confession  and 
avowal  underlay  every  speech  on  that  side  during  that  ses¬ 
sion  of  Congress. 

As  always  in  like  circumstances,  the  lobby  was  there  in 
full  force.  Jan.  31,  a  newspaper  as  nearly  neutral  as  pos¬ 
sible  on  the  tariff  question  printed  the  following  paragraph 
on  this  point :  “  The  pressure  f  rom  the  numerous  tariff  lobb:** 
is  something  tremendous  and  is  increasing  every  day.  Most 
of  the  iron  and  steel  lords  of  Pennsylvania  and  leading  cities 
of  the  country  are  here  working  night  and  day  to  secure  action 
favorable  to  their  interests.  They  are  now  chiefly  disturbed 
over  the  metal  schedule  in  the  Senate.  They  are  bringing  to 
bear  every  possible  influence  to  secure  an  amendment  of  the 
schedule  when  it  is  brought  before  the  Senate  from  the  com¬ 
mittee  of  the  whole.  If  they  can  succeed  in  increasing  the 
rates  in  this  way ,  their  victory  will  be  won ,  and  they  will  not 


UNITED  STATES  TARIFFS. 


577 


need  look  to  a  conference  committee  to  respond  to  their  de¬ 
mands.  9  ’ 

Nevertheless  the  Conference  Committee  a3  between  the 
two  Houses  became  needful  before  the  bill  could  be  enacted. 
Senator  Morrill,  after  whom  this  tariff  was  originally  named, 
was  active  in  this  conference,  and  was  said  by  a  colleague  to 
have  contributed  in  it  to  some  reduction  of  the  proposed 
duties  on  wool  and  some  increase  on  woollens  and  cottons. 
He  had  a  finger  in  the  first  bill  of  18G1,  and  he  had  a  finger 
in  the  last  bill  of  1883,  and  for  this  reason  as  well  as  on  the 
main  ground  of  our  classification  the  tariff  continued  to  be 
the  Morrill  Tariff.  The  Conference  Committee  cut  right  and 
left  on  the  wTork  of  the  two  Houses.  When  the  House 
wanted  a  duty  of  $15  on  steel  rails,  and  the  Senate  $15. G8, 
the  Conference  instead  of  striking  between  the  two,  fixed  it 
at  $17.  Both  Houses  had  agreed  on  50  cents  a  ton  on  iron 
ore:  the  committee  deliberately  put  it  up  to  75  cents.  On 
green  glass  bottles,  there  was  an  increase  of  duty  to  66%, 
being  31%  more  than  the  House  and  36%  more  than  the 
Senate  had  demanded.  There  was  much  color  of  truth  in 
what  was  said  at  the  time  by  a  daily  paper :  4  4  The  fact  is 
that  the  Conference  Committee  without  reference  to  the  nomi¬ 
nal  disagreements  of  the  two  Houses  set  themselves  to  work  to 
placate  Sherman  and  Kelley 

The  bill  was  enacted  on  the  last  day  of  the  session  as  it 
came  from  the  hands  of  the  Conference  Committee ;  and 
it  may  be  truthfully  and  thankfully  conceded,  that  it  was  in 
many  respects  an  improvement  over  what  had  preceded. 
The  rule  of  18G6  was  abandoned,  that  commissions  and 
freights  and  other  charges  should  be  included  in  the  dutiable 
value  of  goods  imported.  That  is  equivalent  to  a  lowering 
of  the  duties  pro  tanto.  The  free  list  was  certainly  in¬ 
creased,  and  it  had  been  increased  before  over  the  earlier 
time  of  the  Morrill  Tariff ;  because,  while  in  1867,  free 
articles  imported  were  less  than  5%  of  the  whole,  they  be¬ 
came  in  1882  30%,  and  perhaps  may  become  under  the  law 


578 


POLITICAL  ECONOMY. 


of  1883  33 \°J0.  The  number  of  specified  articles  on  which 
the  new  tariff  fixed  the  rates  of  duty  was  631.  Of  these, 
524  continued  to  be  described  as  the  tariff  commission  de¬ 
scribed  them,  and  409  retained  the  commission  rate  of  duty ; 
in  50  cases  more  there  was  a  substantial  agreement  with  the 
commission  rate;  and  of  the  172  cases  of  departure  from 
the  commission  rate,  98  were  fixed  at  a  lower  rate,  and  46 
at  a  certainly  higher  and  28  at  a  probably  higher  rate.  As  a 
sample  of  slight  remissions,  for  which  the  million  ought  to 
be  duly  thankful  to  the  powers  that  be,  the  tax  on  spool 
cotton  was  reduced  from  24  to  14  cents  per  dozen  spools. 

In  the  mean  time  public  opinion  is  forming,  informing, 
and  formulating,  itself.  New  England  is  slowly  and  strongly 
swinging  back  to  her  old  and  sound  position.  She  must 
indeed  bear  her  share  of  the  blame  for  getting  and  keeping 
the  country  in  the  quagmires  of  Protection,  and  now  put  to 
her  whole  strength  in  helping  to  get  it  out.  Boston  is  anx¬ 
ious  to  regain  its  ocean  traffic,  and  an  invincible  obstacle 
to  this  is  the  navigation  law  and  a  protective  tariff.  “  Go 
to  the  ocean!”  thundered  Webster  in  1814,  and  the  echoes 
of  that  wise  word  still  linger  along  the  wharves  of  that  city. 
The  West  is  still  more  pronounced  than  the  East  in  favor 
of  commercial  freedom,  partly  from  the  fact  that  its  vast 
losses  from  the  opposite  are  perfectly  patent  to  ordinary 
intelligence.  There  is  no  reason  to  doubt,  that  the  South 
holds  yet  in  substance  and  with  firmness  the  good  traditions 
of  its  elder  statesmen.  The  Middle  States,  though  they 
move  slowly  as  becomes  their  weight,  are  sure  to  move  in 
the  right  direction.  A  clean  and  sound  and  simple  system 
of  national  taxation  is  just  as  sure  to  be  enacted  in  the  next 
coming  years  as  the  sun  is  sure  to  shine ;  for  the  sun  has 
already  shone  in  too  much  on  the  motives  and  methods  and 
meaning  of  ‘  ‘  protection  ’  ’  to  allow  it  length  of  days  or  lease 
of  life  in  the  good  time  coming. 

The  brief  review  of  our  tariff  legislation  in  this  chapter 
amply  confirms  the  strong  words  of  Professor  Sumner: 


UNITED  STATES  TARIFFS. 


579 


“  Practice  and  experience  right  here  in  the  United  States  have 
established  the  practicability  and  advantage  of  absolute  Free 
Trade  by  evidence ,  which,  for  weight ,  uniformity ,  concentration 
and  positiveness ,  is  immeasurably  greater  than  the  evidence 
which  can  be  brought  for  any  other  theory  whatever.”  In  the 
light  of  this  chapter  let  us  read  the  truth  in  the  lines  and 
between  the  lines  of  the  following  official  statement  of  Sec¬ 
retary  Evarts  :  “  The  average  American  workman  performs 
from  one  and  a  half  to  twice  as  much  work  as  the  average 
European  workman.  This  is  so  important  a  point  in  connec¬ 
tion  with  our  ability  to  compete  with  the  cheap  manufactures 
of  Europe ,  and  it  seems ,  on  first  thought ,  so  strange ,  that  I 
will  trouble  you  with  somewhat  lengthy  quotations  from  the 
reports  in  support  thereof.”  Let  us  also  see  the  great  sig¬ 
nificance  of  the  words  in  a  like  Report  to  Congress  of  Secre¬ 
tary  Blaine :  “  Undoubtedly  the  inequalities  in  the  wages  of 
English  and  American  operatives  are  more  than  equalized  by 
the  greater  efficiency  of  the  latter  and  their  longer  hours  of 
labor.  If  this  should  prove  to  be  a  fact  in  practice ,  it  would 
be  a  very  important  element  in  the  establishment  of  our  ability 
to  compete  with  England  for  our  share  of  the  cotton-goods 
trade  of  the  world.”  The  venerable  Governor  Seymour  of 
New  York  confirms  in  these  wise  words  the  grand  distinction 
drawn  in  this  chapter  and  the  one  preceding :  “  It  is  a  reve¬ 
nue  tariff  when  the  duties  collected  are  needed  to  bear  the  cost 
of  government  and  to  pay  the  national  obligations.  By  pro¬ 
tective  tariff ,  I  mean  imposing  taxes  upon  all  classes  of  citizens 
to  build  up  the  prosperity  of  those  engaged  in  special  pursuits, 
thus  placing  them  upon  a  different  footing  from  the  great  mass 
of  our  citizens.” 

The  truth  is,  the  intelligence  of  the  people  of  the  United 
States  is  keen  enough  now  to  appreciate  the  wit  of  Dean 
Swift  in  the  appended  passage,  and  to  repudiate  pretty  soon 
and  once  for  all  the  selfish  and  short-sighted  and  misan¬ 
thropic  tenets  of  a  miserable  policy.  “  The  first  man  I  saw 
was  of  a  meagre  aspect ,  with  sooty  hands  and  face.  His  hair 


580 


» 


POLITICAL  ECONOMY. 


and  beard  long ,  ragged ,  and  singed  in  several  plates.  His 
clothes,  shirt,  and  skin ,  were  all  of  the  same  color.  He  had 
been  eight  years  upon  a  project  for  extracting  sunbeams  out  of 
cucumbers,  which  were  to  be  put  into  phials  hermetically  sealed , 
and  let  out  to  warm  the  air,  in  raw  and  inclement  summers. 
He  told  me,  he  did  not  doubt,  in  eight  years  more,  he  should 
be  able  to  supply  the  Governor’s  gardens  with  sunshine,  at  a 
reasonable  rate;  but  he  complained  that  his  stock  was  low,  and 
entreated  me  to  give  him  something  as  an  encouragement  to 
ingenuity,  especially  as  this  had  been  a  dear  season  for  cu¬ 
cumbers .” 

We  may  now  summarize  very  briefly  :  — 

1.  English  colonists  in  America  were  not  afraid  of  Free 
Trade,  but  established  it  for  themselves  as  a  boon  before  the 
Declaration  of  Independence. 

2.  Their  first  treaty  as  a  nation  was  a  commercial  treaty 
with  France,  founded  upon  reciprocal  utility  and  the  just  rules 
of  free  intercourse. 

3.  Steps  taken  towards  a  better  and  wider  Commerce  were  the 
steps  leading  to  the  Constitution  of  the  United  States. 

4.  Alexander  Hamilton  was  a  willing  witness  to  the  thriving 
state  of  domestic  manufactures  in  1791. 

5.  Fisher  Ames  demonstrated  in  debate  the  inevitable  antag¬ 
onism  between  artificial  manufactures  and  agriculture. 

6.  Daniel  Webster’s  great  speech  of  1824  answered  for  sub¬ 
stance  his  own  and  others’  later  sophistries. 

7.  Calhoun’s  well-grounded  opposition  to  protective  tariffs 
led  on  directly  to  his  ill-grounded  doctrine  of  Secession  and  to 
the  late  Civil  War. 

8.  It  is  too  late  in  the  history  of  the  world  and  of  Chris¬ 
tianity,  too  contrary  to  common  sense  and  good  neighborhood 
among  nations,  and  too  hostile  to  the  real  interests  and  power 
of  any  nation,  to  try  to  maintain  anywhere  heathenish  and 
loss-begetting  restrictions  on  trade. 


TAXATION. 


581 


CHAPTER  XIV. 

TAXATION. 

There  can  be  no  science  of  Taxation  m  the  sense  in  which 
there  is  unquestionably  a  science  of  Production.  Production, 
as  we  have  now  seen,  goes  forward  in  accordance  with  posi¬ 
tive  natural  forces,  which  God  has  appointed,  and  which  men 
can  ascertain  and  generalize  and  profit  by.  Nature  bids 
men  work  and  save,  buy  and  sell,  invent  and  transport,  navi¬ 
gate  and  grow  rich ;  but  Nature  has  given  no  whisper,  that 
we  can  hear,  about  any  taxes.  That  is  the  work  of  Society. 
That  is  something  negative,  not  positive.  Taxation  is  indeed 
something  necessary  to  the  social  order,  as  men  are ;  it  fur¬ 
nishes  means  of  defence  against  greater  evils  than  itself  is  ; 
but  in  itself  considered,  it  is  an  economic  evil,  because  it 
takes  away  from  exchangers  a  part  of  the  gains  of  their 
exchanges  ;  it  is  not  strictly ,  therefore,  a  part  of  economic 
science  ;  but  its  relations  are,  after  all,  so  intimate  with  that 
science,  that  it  must  be  treated  as  if  it  were  a  part  of  it. 
There  are  true  principles  of  Taxation,  as  related  to  Ex¬ 
changes,  although  there  never  can  be  a  true  science  of  Tax¬ 
ation  in  the  grand  and  positive  sense  in  which  there  is  a 
science  of  Exchanges  Proper. 

Value  resides  in  Services  exchanged ;  but,  as  men  are, 
Government  is  an  essential  prerequisite  to  any  general  and 
satisfactory  exchanges,  since  it  contributes  by  direct  effort 
to  the  security  of  person  and  property ;  and  justly  claims, 
therefore,  from  each  citizen  a  compensation  in  return  for  the 
services  thus  rendered  to  him.  We  do  not  mean  to  say  that 
government  .exists  solely  for  the  protection  of  person  and 


582 


POLITICAL  ECONOMY. 


property,  or  that  all  the  operations  of  government  are  to  be 
brought  clown  within  the  sphere  of  exchange,  for  government 
exists  as  well  for  the  improvement  as  for  the  protection  of 
society,  and  many  of  its  high  functions  are  moral,  to  be  per¬ 
formed  under  a  lofty  sense  of  responsibility  to  God  and  to 
future  ages  ;  nor  do  we  mean  to  say  that  government  has  not 
also  a  deep  ground  for  its  existence,  in  virtue  of  which  it 
may  on  extraordinary  occasions  demand  all  the  property  of 
all,  and  even  the  lives  of  some,  of  its  citizens ;  but  we  do 
mean  to  say  that,  whatever  may  be  conceded  as  the  ultimate 
ground  of  government,  the  matter  of  taxation,  by  which 
goverment  is  outwardly  and  ordinarily  supported,  and  by 
which  it  takes  to  itself  a  part  of  the  gains  of  every  man’s 
industry,  finds  a  ready  and  solid  justification  in  the  common 
principles  of  exchange.  If,  as  far  as  the  tax-payer  is  con¬ 
cerned,  the  exchange  does  not  seem  to  be  voluntary,  on  a 
closer  analysis  it  is  seen  to  be  really  voluntary ;  for  in  effect 
the  people  organize  government  for  themselves,  and  volun¬ 
tarily  support  it,  and  there  is  no  government  separate  from 
the  will  of  the  people.  The  practical  rules  of  taxation  at 
any  rate,  whether  th o,  fundamental  reasons  for  it  or  not,  must 
always  be  found  within  the  principles  of  our  science ;  and 
while  it  is  admitted  that  here  is  another  point  of  contact  with 
the  regions  beyond,  all  that  really  belongs  to  it  must  be  vin¬ 
dicated  lor  Political  Economy.  In  a  very  important  sense 
accordingly,  a  tax  paid  is  a  reward  for  a  service  rendered. 
The  service  which  government  renders  to  production  by  its 
laws,  courts,  and  officers,  by  the  force  which  it  is  at  all  times 
ready  to  exert  in  behalf  of  any  citizen  or  the  whole  society 
when  threatened  with  evil  in  person  or  property,  is  rendered 
somewhat  on  the  principle  of  division  of  labor,  one  set  of 
agents  devoting  themselves  to  that  work  ;  and,  notwithstand¬ 
ing  some  crying  abuses  of  authority  which  no  constitution  or 
public  virtue  has  yet  been  found  adequate  wholly  to  avert, 
is  rendered  on  the  whole  economically  and  satisfactorily. 
Taxes,  therefore,  demanded  of  citizens  by  a  lawful  govern- 


TAXATION. 


583 


ment  which  tolerably  performs  its  functions,  are  legitimate 
and  just  on  principles  of  exchange  alone. 

1.  What  is  the  Source  out  of  which  taxes  are  actually 
paid?  The  answer  is,  out  of  the  gains  of  exchanges  of  some 
sort.  Gifts  aside,  and  thefts  which  are  out  of  the  question,  no 
man  ever  did,  no  man  ever  can,  pay  his  taxes,  except  out  of 
the  gains  of  some  sales  which  he  has  already  made.  Even 
the  man  who  lives  wholly  on  the  interest  of  his  money  must 
make  a  true  exchange  in  lending  it  (a  credit  transaction), 
and  musl  already  have  gotten  his  return-service  in  interest, 
before  he  can  pay  his  taxes  ;  personal  and  professional  ser¬ 
vants  must  receive  their  wages,  the  outcome  of  exchanges, 
before  they  can  possibly  pay  their  taxes  ;  and  men  can  real¬ 
ize  nothing  for  taxes  or  other  payments  from  their  farms  or 
foundries  or  stocks  in  trade  except  as  they  sell  either  them 
or  their  products.  The  more  sales,  the  more  gains,  and  the 
greater  reservoir  whence  taxes  may  be  drawn.  Political 
Economy,  as  the  vindicator  of  sales,  as  the  defender  of  all 
legitimate  gains  whatsoever,  is  the  best  possible  friend  of 
tax-payers  and  tax-gatherers  as  such.  Whatever  thought  or 
force  restricts  sales,  makes  it  pro  tanto  the  harder  to  pay  and 
collect  taxes,  so  much  the  harder  for  a  government  to  keep 
its  head  above  water  and  reach  the  ends  of  its  being. 

Green’s  History  of  England  (I.,  322  et  seq.)  gives  an 
outline  of  the  taxes  there  from  the  beginning  of  the  mon¬ 
archy.  As  land  was  almost  the  only  source  of  salable  things 
in  the  early  time,  so  it  was  almost  the  only  thing  on  which 
taxes  were  levied.  Danegeld  and  scutage  and  feudal  aids 
fastened  only  on  the  land.  “  But  a  new  principle  of  taxation 
was  disclosed  in  the  tithe  levied  for  a  Crusade  at  the  close  of 
Henry  Second’s  reign.  Land  was  no  longer  the  only  source 
of  wealth.  The  growth  of  national  prosperity,  of  trade  and 
commerce,  was  creating  a  mass  of  personal  property  which 
offered  irresistible  temptations  to  the  Angevin  financiers. 
No  usage  fettered  the  Crown  in  dealing  with  personal  prop¬ 
erty,  and  its  growth  in  value  promised  a  growing  revenue, 


584 


POLITICAL  ECONOMY. 


Grants  of  from  a  seventh  to  a  thirtieth  of  movables,  house¬ 
hold  property,  and  stock,  were  demanded.  The  right  of  the 
king  to  grant  licenses  to  bring  goods  into  or  to  trade  within 
the  realm,  a  right  springing  from  the  need  of  his  protection 
felt  by  the  strangers  who  came  there  for  purposes  of  traffic, 
laid  the  foundation  for  our  taxes  on  imports.  Those  on 
exports  were  only  a  part  of  the  general  system  of  taxing 
personal  property.  How  tempting  this  source  of  revenue 
was  proving,  we  see  from  a  provision  of  the  Great  Charter, 
which  forbids  the  levy  of  more  than  the  ancient  customs  on 
merchants  entering  or  leaving  the  realm.  Commerce  was  in 
fact  growing  with  the  growing  wealth  of  the  people.’  ’  This 
passage  shows,  that,  as  a  matter  of  fact,  taxes  have  always 
hinged,  and  must  hinge,  on  trade. 

2.  In  what  Measure  or  proportion  ought  citizens  to  con¬ 
tribute  to  the  fund  necessary  to  be  raised  by  taxation  ?  The 
usual  answer  has  been,  that  a  man  should  be  taxed  accord¬ 
ing  to  his  property.  That  is  the  radically  correct  answer, 
though  most  who  have  given  it  have  not  understood  clear 'y 
the  meaning  of  the  word  property.  We  have  already  se(  1 
that  the  ultimate  idea  of  property  is  the  power  and  right  1  > 
render  services  in  exchange,  and  defined  it  as  any  thing  that 
can  he  bought  and  sold.  Robinson  Crusoe,  while  solitary 
upon  his  island,  did  not  and  could  not  have  property,  in  the 
true  sense  of  that  word.  It  is  not  the  fact  of  appropriation 
that  makes  any  thing  property  ;  it  is  not  the  fact  that  a  man 
has  made  it  or  transformed  it,  that  makes  any  thing  prop¬ 
erty  ;  it  is  not  the  fact  that  a  man  may  rightfully  give  it 
away,  that  makes  any  thing  property  ;  but  it  is  the  fact  that 
a  man  has  something,  no  matter  what  it  is,  for  which  some¬ 
thing  else  may  be  obtained  in  exchange,  that  makes  that 
something  property,  and  gives  government  the  right  to  tax 
it.  In  other  words,  property  consists  in  values,  in  a  pur¬ 
chasing-power,  and  not  in  possession,  or  in  appropriation,  oi 
in  the  esteem  in  which  a  man  holds  any  thing  he  has  as  long 
as  it  is  his  own.  The  test  of  property  is  a  sale  ;  that  which 


TAXATION. 


585 


will  bring  something  when  exposed  for  exchange  is  property  ; 
that  which  will  bring  nothing,  either  never  was,  or  has  now 
ceased  to  be,  distinctively  property.  This  view  may  not 
seem  to  be  as  novel  as  it  is,  or  it  may  be  prejudiced  by  its 
very  novelty,  but  at  any  rate  it  carries  along  with  it  that 
strongest  of  the  criteria  of  truth,  that  it  simplifies  and  illu¬ 
mines  a  confused  section  of  the  field  of  human  thinking ; 
and  at  the  same  time  justifies  a  practice  which  governments 
have  reached,  as  it  were  through  instinct,  the  practice, 
namely,  of  taxing  men  who  have  neither  real  estate  nor  chat¬ 
tels,  on  their  incomes  from  industry. 

To  the  general  question,  then,  in  what  proportions  shall 
the  citizens  contribute  in  taxes  to  the  support  of  government, 
the  general  answer  comes,  that  they  ought  to  contribute  in 
proportion  to  the  gains  of  their  exchanges ,  of  whatever  kind 
they  may  be.  The  farm,  the  foundry,  the  mill,  the  railroad, 
the  real  estate  of  every  name ;  personal  property  of  every 
kind ;  and  personal  acquirements  and  efforts  of  all  descrip¬ 
tions,  best  appear,  for  the  purposes  of  taxation,  through  the 
gains  realized  by  means  of  them.  If,  for  any  reason,  any  of 
these  become  unproductive,  taxes  should  cease  to  be  derived 
from  them ;  indeed,  must  cease  to  be  derived  from  them, 
because  their  owners  can  no  longer  pay  by  virtue  of  them. 
It  may  be  objected,  that  lands,  for  example,  presently  un¬ 
productive,  may  be  held  untaxed  under  this  principle,  held 
for  the  sake  of  a  prospective  rise  of  price.  Very  well ;  when 
they  are  sold  at  a  profit,  let  the  owner  be  taxed  on  that 
profit :  it  will  be  time  enough  then,  especially  as  men  do  not 
like  to  hold  unproductive  forms  of  property.  It  may  also  be 
objected,  that,  under  this  principle,  wages,  the  result  of  per¬ 
sonal  and  professional  exertion,  would  be  taxed  just  the 
same  as  profits  and  rents,  the  result  of  previously  accumu¬ 
lated  property.  Very  well ;  they  ought  to  be  so  taxed.  Can 
anybody  give  a  solid  reason  why  they  ought  not  to  be  so 
taxed?  One  may  say,  that  a  professional  man  earning  a 
large  income,  on  which  taxes  are  paid  the  same  as  on  a  simi- 


586 


POLITICAL  ECONOMY. 


lar  income  of  a  land-proprietor,  dying,  leaves  to  his  children 
no  further  means  of  earning,  while  the  land-proprietor,  dying, 
does  leave  such  means.  Granted  ;  but  the  land  income  con¬ 
tinues  to  pay  taxes,  while  that  professional  income  does  not ! 
Other  members  of  the  profession  will  do  the  business  which 
the  former  one  would  have  done  had  he  lived,  and  they  will 
paj  taxes  on  the  income  from  it.  What  a  man  transmits  to 
liis  children,  whether  a  great  name  or  a  great  estate,  has 
nothing  to  do  with  the  amount  of  taxes  that  he  ought  to  pay 
while  he  lives.  There  is  an  illusion  about  land  and  realized 
property  that  needs  to  be  dissipated  before  men  will  under¬ 
stand  clearly  the  whole  matter  of  taxation.  Without  con¬ 
stant  watchfulness  and  foresight,  without  constant  efforts  in 
improvements  and  repairs,  almost  every  form  of  realized 
property  will  rapidly  deteriorate  and  become  unproductive. 
Land  even  in  Great  Britain,  where  land  is  scarce,  is  onlj 
worth  about  twenty-five  years’  rent ;  and  without  the  exer 
cise  of  intelligence  and  will  property  ceases  to  be.  Property 
has  its  birth  in  services  exchanged ;  services  exchanged  give 
rise  to  gains;  taxes  can  only  be  paid  out  of  these  gains;  they 
ought  to  be  proportioned  to  tht ,  amount  of  these  gains  without 
any  reference  to  the  class  of  exchanges  producing  them;  while 
the  right  to  tax  on  the  part  of  the  government  is  connected  with 
a  service  rendered  by  government ,  and  both  grows  out  of  and 
is  limited  by  the  right  to  exchange  on  the  part  of  the  citizens. 
These  considerations,  though  they  may  exclude  the  propriety 
of  a  poll-tax,  are  consistent  with  most  other  forms  of  taxa¬ 
tion,  and  give  unity  to  them. 

3.  It  follows  plainly  from  these  principles  that  an  Income 
Tax,  if  the  exact  amount  of  income  could  in  all  cases  be 
ascertained,  and  if  no  other  form  of  tax  were  levied,  would 
be  a  perfectly  unexceptionable  form  of  taxation.  The  only 
sources  of  income  are  three :  wages,  profits,  rents.  It  does 
not  seem  that  gifts  are  legitimately  taxable ;  they  lie  out¬ 
side  the  field  of  exchange  ;  they  spring  from  sympathy,  from 
benevolence,  from  duty ;  and  while  exchange  must  claim  all 


TAX  A  TION. 


587 


that  fairly  belongs  to  it,  it  must  be  careful  not  to  throw  dis¬ 
couragements  into  the  adjacent  but  distinct  field  of  morals. 
Hence,  it  may  well  be  questioned  whether  legacies,  bequeath- 
ments,  gifts  to  charitable  and  educational  institutions,  and 
gifts  to  individuals  proceeding  from  friendship,  gratitude,  or 
other  such  impulse,  are  properly  subject  to  taxation.  The 
property  is  taxable  in  the  hands  of  the  donor,  and  may  be  in 
the  hands  of  the  recipient,  but  the  passage  from  one  to  the 
other  ought  to  be  unobstructed  by  a  tax.  Gifts  then  ex 
cepted,  and  plunder,  which  is  out  of  the  question,  the  sources 
of  income  are  few  and  simple,  and  there  is  no  great  difficulty 
in  eveiy  man  ascertaining  about  what  his  annual  income  is. 
Because  this  income,  exactly  ascertained,  exactly  measures 
the  gains  of  his  exchanges  for  that  year,  a  tax  upon  that 
income  is  the  fairest  of  all  possible  forms  of  taxation,  and 
might  be  made  with  advantage,  in  time,  to  supersede  all 
other  forms.  The  late  national  income  tax  was  new  in  this 
country,  and  for  certain  reasons  not  inherent  in  the  nature 
of  the  tax  became  unpopular  in  influential  quarters,  and  was 
discontinued  ;  but  the  English  have  found  their  income  tax 
to  be  for  more  than  thirty  years  the  most  uniform,  unfailing, 
expansive,  and  responsive  to  control  of  all  their  fiscal  expe¬ 
dients.  Their  rate  has  varied  from  two  to  sixteen  pence  to 
the  pound  of  income.  In  1857,  it  realized  $80,255,000.  In 
1866,  our  own  national  income  tax  realized  $60,894,135. 
The  Germans,  too,  are  now  applying  an  income  tax  as  one 
of  their  sources  of  revenue. 

Besides  the  complete  harmony  of  an  income  tax  with  the 
general  principles  of  taxation,  as  already  unfolded,  it  has  a 
grand  advantage  over  all  other  forms  of  taxation  in  that  it 
has  no  tendency  to  disturb  prices.  Were  there  no  taxation 
except  on  incomes,  and  were  the  incomes  rightly  rendered, 
the  prices  of  every  thing  would  be  just  as  if  there  were  no 
taxes.  Taxation  would  then  be  like  the  atmosphere,  press¬ 
ing  equally  on .  all  points  and  consciously  on  none.  It  is 
through  tricks  wrought  on  prices  that  the  greatest  injustice 


588 


POLITICAL  ECONOMY. 


is  done  and  suffered  in  this  country  at  present ;  a  depreci¬ 
ated  paper  money,  for  example,  raises  some  prices  and  not 
others,  and  some  prices  before  others,  and  thus  distributes 
its  mischiefs  unequally;  the  “protective”  tariff-taxes  play 
fantastic  tricks  with  prices,  raising  some  and  depressing 
others,  thus  working  monstrous  injustice  on  a  great  scale ; 
and  almost  all  forms  of  taxation  become  unequal  and  unjust 
through  their  diverse  action  on  prices.  But  a  universal  in¬ 
come  tax,  properly  levied  and  fully  responded  to  by  the  pay¬ 
ers,  would  have  no  influence  at  all  upon  prices,  could  by  no 
possibility  work  essential  injustice,  and  would  be  certain  to 
be  very  productive. 

Another  great  advantage  of  an  income  tax  in  such  a  coun¬ 
try  as  this  would  be,  that  all  men  would  keep  accounts,  more 
orderly  methods  of  business  would  prevail,  men  would  know 
better  where  they  stand  themselves  and  whom  of  others  to 
trust,  failures  would  be  less  frequent,  and  every  thing  would 
be  more  known  and  above-board. 

In  this  country,  where  taxes  hove  to  be  paid,  first  to  the 
local  municipality,  then  to  the  state,  and  last  to  the  nation, 
income  taxes,  were  all  others  abolished,  would  have  this 
immense  advantage,  that  the  municipality  might  ascertain 
the  incomes  once  for  all,  the  state  and  the  nation  merely  col¬ 
lecting  an  additional  per  cent  for  themselves  ;  or  better  still, 
by  amicable  arrangement,  neither  party  yielding  its  inherent 
right  to  tax,  one  set  of  officials  might  ascertain  and  collect 
the  tax  for  all  three  governments  once  for  all.  An  objection 
has  been  raised  from  the  publicity  resulting  from  an  income 
tax.  This  is  no  objection  at  all,  inasmuch  as  every  man  has 
a  right  to  know  that  his  neighbors  are  contributing  to  support 
the  government  pro  rata  with  himself.  In  bearing  up  the 
burden  of  government  all  citizens  are  copartners,  and  in  this 
view  each  has  a  right  to  demand  a  look  into  the  books  of  the 
others.  Another  objection  has  been  raised,  that  men  will 
not  give  in  a  true  return  of  their  income.  Ah  !  but  they  can 
be  made  to  do  so,  as  the  forms  are  perfected,  as  fraudulent 


TAXATION. 


589 


returns  are  promptly  punished  by  additional  assessment  and 
collection,  and  as  the  memory  and  conscience  of  the  payers 
are  quickened  by  the  action  of  a  healthful  public  opinion 
brought  to  bear  through  the  annual  publication  of  the  list  of 
their  returns.  Men  are  not  so  isolated  from  each  other  as 
that  a  man’s  neighbors  do  not  know  pretty  well  the  general 
amount  of  his  income.  There  is  the  additional  security  of 
an  oath,  of  the  fear  of  punishment,  and  of  the  wish  to  stand 
well  with  one’s  class.  At  the  worst,  it  may  be  said,  that 
evasions  and  fraud  accompany  also  all  other  forms  of  taxa¬ 
tion.  No  fair  experiment  has  yet  been  made  in  this  country 
with  an  income  tax ;  special  reasons  made  the  late  law  ob¬ 
noxious  ;  but  if  the  system  were  permanently  established  in 
lieu  of  all  others,  the  practical  difficulties  under  it  would  grow 
less  and  less  every  year.  It  may  be  long  before  we  shall 
ever  come  to  this ;  but  the  truth  remains  that  income  taxes 
are  the  justest  of  taxes. 

4.  Taxes  are  commonly  and  properly  divided  into  two 
classes,  namely,  Direct  and  Indirect  Taxes.  A  direct  tax 
is  levied  on  the  very  persons  who  are  expected  themselves  to 
pay  it ;  an  indirect  tax  is  demanded  from  one  person  in  the 
expectation  that  he  will  pay  it  provisionally,  but  will  indem¬ 
nify  himself  in  the  higher  price  which  he  will  receive  from 
the  ultimate  consumer.  Thus  an  income  tax  is  direct,  while 
duties  laid  on  imported  goods  are  indirect.  There  has  been 
a  great  amount  of  discussion  on  the  point  whether  direct  or 
indirect  taxation  be  the  more  eligible  form ;  but  the  reader 
of  penetration  will  perceive  that  there  is  not  at  bottom  any 
very  radical  difference  between  them  ;  each  is  alike  a  tax  on 
actual  or  possible  exchanges,  with  this  main  difference,  that 
men  pay  indirect  taxes  as  a  part  of  the  price  of  the  goods 
they  buy,  without  thinking  perhaps  that  it  is  a  tax  they  are 
paying,  and  consequently  without  any  of  the  repugnance  that 
is  sometimes  felt  towards  a  tax-gatherer  who  comes  with  an 
unwelcome  demand.  Thus  indirect  taxes  are  conveniently 
and  economically  collected.  Especially  is  this  true  of  impost 


590 


POLITICAL  ECONOMY. 


duties ;  since  one  set  of  custom-house  officers  collect  easily 
and  at  once  the  government  tax  which  is  ultimately  paid  by 
consumers  all  over  the  country.  The  taxes  levied  by  the 
present  United  States  internal  revenue  law  are  indirect  taxes, 
whereby  the  government  gets  in  a  lump  what  is  afterwards 
distributed  over  many  subordinate  exchanges.  The  counter¬ 
vailing  disadvantage  of  indirect  taxation,  however,  is,  that 
the  price  of  the  commodity  is  usually  enhanced  to  an  extent 
much  beyond  the  amount  of  the  tax,  partly  because  it  is  a 
cover  under  which  dealers  may  put  an  unreasonable  demand, 
and  partly  because  the  tax,  having  to  be  advanced  over  and 
over  again  by  the  intermediate  dealers,  profits  rapidly  accu¬ 
mulate  as  an  element  of  the  price. 

Direct  taxes  are  laid  either  on  income  or  expenditure.  As 
the  difficulty  of  a  tax  on  a  person’s  whole  expenditure  is 
much  greater  than  one  on  his  whole  income,  inasmuch  as  the 
items  are  more  numerous  and  more  diffused,  it  is  only  at¬ 
tempted  to  levy  a  few  taxes  on  some  special  items  of  expen¬ 
diture,  such  as  those  on  horses,  carriages,  plates,  watches, 
and  so  on  ;  but  as  these  do  not  reach  all  persons  with  any 
degree  of  equality,  they  are  so  far  forth  objectionable.  A 
house-tax,  levied  on  the  occupier,  and  not  on  the  owner 
unless  he  be  at  the  same  time  the  occupier,  would  be  a  direct 
tax  on  expenditure  every  way  unobjectionable.1  Taking 
society  at  large,  the  house  a  man  lives  in  and  its  furniture 
are  probably  the  most  accurate  index  attainable  of  the  size 
of  his  general  expenditures.  They  are  open  to  observation 
and  current  remark  ;  they  are  that  on  which  pers./ns  rely 
more  perhaps  than  on  any  thing  else  external  for  their  con¬ 
sideration  and  station  in  life ;  the  tax  could  be  assessed  with 
very  little  trouble  on  the  part  of  the  assessor  ;  and  it  is  well 
worthy  the  attention  of  our  national  legislature,  whether  such 
a  tax,  if  more  taxes  should  be  needed,  would  not  be  more 
equal  and  more  easy  of  collection  than  any  others  now  open  ; 
or  whether  it  might  not  with  advantage  take  the  place  of 

1  Mill,  chap,  iii.,  book  5. 


TAXATION. 


591 


some  of  the  complicated  and  objectionable  taxes  now  laid. 
Direct  taxes  have  this  general  advantage  over  indirect,  that 
they  bring  the  people  into  more  immediate  contact  with  the 
government  that  lays  the  taxes,  and  subject  it  to  a  quicker 
supervision  and  more  effectual  curb,  whenever  its  expendi¬ 
tures  grow  larger  than  the  people  think  it  desirable  to  incur ; 
they  have  this  general  disadvantage  over  indirect  taxes,  espe¬ 
cially  over  imposts,  that  the  number  of  officials  required  to 
assess  and  collect  them  is  much  larger,  thus  swallowing  up 
a  part  of  the  proceeds  of  the  taxes,  with  this  liability  also 
of  bringing  the  people  into  an  attitude  of  hostility  to  the  gov¬ 
ernment  and  to  its  contemplated  expenditures.  But  whether 
the  taxes  be  direct  or  indirect,  or  whatever  be  their  form, 
except  it  be  a  poll-tax,  which  is  questionable  at  best,  they 
are  laid  upon  exchanges,  and  are  designed  to  withdraw  for 
the  use  of  the  government  a  part  of  the  gains  of  exchanges. 

5.  There  is  every  opportunity  in  this  country  to  try  experi¬ 
ments  in  taxation,  and  to  reach  through  experience  the  best 
modes,  since  the  states  establish  their  own  systems  inde¬ 
pendently  of  any  national  action.  There  is  consequently 
great  diversity  of  methods  in  different  localities  and  under 
the  different  governments.  The  nation  raises  its  revenue 
mainly  through  a  tariff,  subordinately  through  an  excise, 
both  indirect  taxation.  Most  of  the  states  raise  their  reve¬ 
nue  by  direct  taxes  upon  land  or  other  property,  though 
Pennsylvania  has  recently  tried  with  gratifying  results  the 
expedient  of  an  indirect  tax  on  corporations  in  lieu  of  her 
former  direct  taxes.  It  may  possibly  be,  considering  the 
complex  character  of  our  government  —  the  wheels  within 
the  wheel  —  that  a  combination  of  different  taxes,  indirect 
for  the  nation  and  direct  for  the  states,  may  reach  a  rough 
result  of  justice.  But  in  order  that  it  may  do  this  even  ap¬ 
proximately,  there  must  be  more  simplicity  in  each  method, 
and  a  more  studied  harmony  between  them,  than  has  been 
hitherto  attempted.  Taxes  must  be  seen  to  be  taxes ,  and 
viewed  with  a  comprehensive  reference  to  other  taxes  falling 


592 


POLITICAL  ECONOMY. 


upon  the  same  persons,  before  any  thing  like  a  system  of 
taxation  can  exist  for  the  United  States. 

The  aggregate  customs  revenue  of  the  United  States  for 
the  five  fiscal  years,  1877-81,  was  $792,222,909,  and  the 
direct  cost  of  the  collection  of  this  sum  was  $30,228,113,  or 
3.81%.  We  have  already  seen  sufficiently  in  the  chapter  on 
Foreign  Trade  the  radical  objections  to  raising  a  revenue  by 
such  a  tariff  as  that,  under  which  this  vast  sum  was  gathered 
in  five  years;  namety,  (1)  the  people  were  made  to  pay 
under  this  form  of  taxation  a  manifold  vaster  sum  than  this, 
of  which  the  Treasury  did  not  receive  one  single  cent,  which 
is  a  monstrous  abuse  of  the  taxing  power ;  (2)  the  most 
stinging  injustice  was  wrought  between  man  and  man  and 
class  and  class,  by  artificially  raising  the  prices  of  some  prod¬ 
ucts  and  depressing  the  prices  of  other  products  through 
the  designed  action  and  reaction  of  such  a  tariff,  which  is  a 
monstrous  abuse  of  the  general  governing  power.  The  In¬ 
ternal  Revenue  of  the  United  States  for  the  six  fiscal  years, 
1877-82,  was  very  nearly  $718,000,000,  and  the  direct  cost 
of  collection  was  3.51%.  In  utter  contrast  with  the  tariff- 
taxes,  the  internal  revenue  taxes  are  laid  on  a  very  few  arti¬ 
cles,  in  a  very  simple  way,  with  a  single  view  to  get  money 
into  the  Treasury ;  and  as  a  beautiful  consequence,  the  re¬ 
ceipts  increased  from  $113,000,000  in  1879  to  $123,000,000 
in  1880,  $135,000,000  in  1881,  and  $146,000,000  in  1882. 
The  great  bulk  of  these  immense  sums  was  derived  from 
three  sources,  namely,  distilled  spirits,  malt  liquors,  and 
cigars.  The  only  other  subjects  of  excise  taxes,  which 
yielded  in  the  aggregate  less  than  $19,000,000  in  1882,  were 
matches,  patent  medicines,  and  banks.  Compared  with  the 
tariff,  the  excise  is  simplicity  itself ;  and  if  the  tariff  were 
simplified  on  the  same  principle,  with  the  same  end  in  view, 
taxing  not  over  a  dozen  articles,  little  would  be  left  to  be 
desired  in  the  tax-system  of  the  United  States.  Probably  a 
simple  and  exclusive  income  tax  would  be  better  even  than 
this. 


TAXATION . 


593 


Great  difficulties  lie  in  the  way  of  harmonizing  the  tax- 
systems  of  the  States  with  any  existing  or  immediately  pro¬ 
spective  taxing-system  of  the  Nation.  Vermont  has  a  new 
system  under  which  she  is  trying  to  get  taxes  from  her  citi¬ 
zens  on  commodities  wherever  situated  and  on  credits  wher¬ 
ever  deposited.  Unavoidable  frictions  arise  here,  because  it 
may  be  claimed  that  parts  of  the  property  are  in  other  States 
and  taxed  there,  or  at  least  are  not  protected  by  the  law  of 
Vermont,  and  ought  not  therefore  to  be  taxed  under  it.  For 
example,  parties  depositing  bonds  and  valuables  in  safes  in 
New  York,  might  claim  that  they  were  out  of  the  jurisdiction 
of  Vermont,  and  if  stolen,  officials  of  that  State  would  not 
be  called  on  to  lift  a  finger.  An  exclusive  income  tax  would 
obviate  all  difficulties  of  this  sort,  because  a  man  would  pay 
his  tax  where  his  domicile  is,  no  matter  what  the  kind  or 
place  of  his  property. 

6.  If  direct  taxes,  other  than  an  income  tax,  be  levied,  it 
is  very  clear  that  credits  are  a  legitimate  subject  of  taxation. 
Whatever  is  bought  and  sold  is  properly  enough  taxed,  if 
the  needs  of  the  government  require  it,  and  if  such  taxation 
would  be  productive  and  not  too  unequal.  As  values  always 
spring  from  the  action  of  individuals,  so  the  incidence  of 
taxes  is  upon  persons  rather  than  upon  things  ;  and  the  ques¬ 
tion  is  what  can  a  man  sell,  or  what  has  he  already  sold,  on 
the  gains  of  which  sale  the  government  may  lay  some  claim? 
If  I  have  a  mortgage  on  my  neighbor’s  farm,  I  can  sell  it 
at  any  time  to  a  third  party  ;  it  pays  me  interest  ad  interim , 
and  I  can  collect  it  at  maturity.  Government  therefore 
properly  taxes  me  for  that  credit  in  my  possession.  It  is  a 
part  of  my  property.  The  holders  of  the  government  bonds 
occupy  an  economical  position  exactly  similar.  They  have 
a  lien  on  the  national  property  and  income.  The  credits 
they  hold  are  vendible  commodities.  They  are  a  paper 
bearing  interest.  They  can  be  collected  at  maturity.  They 
are  indeed  exempted  by  law  from  municipal  and  State  taxa¬ 
tion.  That  was  a  legit  mate  inducement  held  out  to  every- 


594 


POLITICAL  ECONOMY. 


body  alike  to  invest  in  the  bonds.  But  there  is  no  reason 
why  the  nation,  having  withdrawn  them  from  town  and  State 
taxation,  should  not  itself  all  the  more  subject  them  to  their 
fair  share  of  the  national  burdens,  unless  indeed  it  be 
claimed,  as  perhaps  it  fairly  may  be,  that  the  exemption 
enables  the  government  to  borrow  at  a  just  so  much  lower 
rate  of  interest.  The  income  at  any  rate  derived  from  the 
bonds  should  be  taxed  as  soon  as  any  other  income  is.  It 
is  no  longer  any  ground  of  merit,  even  if  it  ever  Has  been, 
for  persons  to  buy  the  government  debt.  It  is  a  mercantile 
transaction,  and  should  be  so  considered  in  relation  to  taxes. 
So  of  other  mercantile  credits.  They  are  taxable. 

Massachusetts  has  had  a  great  deal  of  trouble  of  late 
years  both  in  the  Legislature  and  otherwise  about  the  taxa¬ 
tion  of  mortgages  on  taxed  Massachusetts  farms  and  other 
real  estate.  The  question  is  intricate  and  full  of  difficulty. 
Some  things  about  it,  however,  are  clear.  The  mortgage  is 
a  different  piece  of  property,  and  a  different  kind  of  property, 
from  the  real  estate.  It  is  a  peculiar  sort  of  credit.  The 
owner  of  it  is  a  different  person  from  the  owner  of  the  real 
estate.  Either  bit  of  property  may  change  hands  without 
changing  the  status  of  the  other.  The  question  of  taxing  the 
mortgage,  like  the  question  of  taxing  the  bonds,  seems  to 
hinge  on  the  effect  it  would  have  on  the  rate  of  interest  of 
the  obligation  secured  by  the  mortgage.  If  the  holder  of  the 
mortgage  expects  to  have  to  pay  a  tax  upon  it,  he  will  try  to 
get  a  higher  rate  of  interest  on  his  money  loaned  and  thus 
secured.  Whether  mortgagees  taxed  as  such  can  throw  off 
the  tax  upon  the  mortgagors  in  a  higher  rate  of  interest  on 
the  money  loaned  is  a  point  much  disputed  and  at  least 
doubtful.  General  principles  would  lead  us  to  favor  the 
taxation  of  mortgages  in  the  hands  of  their  holders,  so  long 
as  such  cumbersome  forms  of  taxing  as  prevail  in  Massachu¬ 
setts  are  maintained.  A  universal  income  tax  would  solve 
this  difficulty  also  in  a  moment  of  time. 

7.  Taxes  in  general,  in  order  to  be  most  productive  in  the 


TAXATION. 


595 


long  run,  as  well  as  discourage  as  little  as  possible  the  ex¬ 
change^  which  would  otherwise  go  forward,  ought  to  be  low 
relatively  to  the  amount  of  values  exchangeable.  A  high 
tax  not  infrequently  stops  exchanges  in  the  taxed  articles 
altogether,  and  of  course  the  tax  then  realizes  nothing  to 
the  government.  As  the  only  motive  to  an  exchange  is 
the  gain  of  it,  the  exchange  ceases  whenever  the  govern¬ 
ment  cuts  so  deeply  into  the  gain  as  to  leave  little  margin 
to  the  exchangers.  The  greater  the  gain  left  to  the  parties, 
after  the  tax  is  abstracted,  the  more  numerous  will  the  ex¬ 
changes  become,  and  the  greater  the  number  of  times  will 
the  tax  fall  into  the  coffers  of  the  government.  In  almost  all 
articles,  consumption  increases  from  a  lowered  price  in  even 
a  greater  ratio  than  the  diminution  of  the  rate  of  tax  ;  so  that 
the  interests  of  consumers  and  of  the  revenue  are  not  antag¬ 
onistic  but  harmonious.  On  articles  of  luxury  and  ostenta¬ 
tion,  and  on  those,  such  as  liquors  and  tobaccos,  whose  moral 
effects  are  clearly  questionable,  very  high  taxes  may  properly 
enough  be  laid,  because-  their  incidence  will  hardly  tend  to 
diminish  consumption,  and  it  would  scarcely  be  to  be  re¬ 
gretted  if  it  did ;  but  with  this  exception,  duties  and  taxes 
should  be  levied  at  a  low  rate  per  cent,  as  well  for  the  in¬ 
terest  of  revenue  as  of  consumers.  It  is  to  be  added,  how¬ 
ever,  that  the  taxes  even  on  these  articles  may  be  too  high 
to  meet  either  a  revenue  or  a  moral  purpose.  The  internal 
tax  of  two  dollars  a  gallon  upon  distilled  spirits  was  of  this 
character.  Experience  has  demonstrated  that  a  less  t.ix 
will  produce  more  revenue,  and  the  drinking  of  whiskey,  bad 
as  that  is,  is  less  culpable  than  the  endless  frauds  on  the 
government  provoked  by  the  high  tax. 

8.  Duties  and  taxes  should  be  simple,  and  their  amount 
easily  calculable  by  the  payer  beforehand.  The  complication 
of  specific  with  ad  valorem  duties  is  a  decided  objection  to 
the  present  tariff.  The  latter  is  a  duty  of  so  much  per  cent 
on  the  invoiced  or  appraised  value  of  the  goods  :  the  former 
is  a  duty  of  so  many  cents  or  dollars  on  the  pound,  yard, 


596 


POLITICAL  ECONOMY. 


gallon,  or  other  quantity.  There  are  too  many  practical  diffi¬ 
culties  connected  with  either  form  of  duty  to  make  it  proper 
to  combine  the  two  upon  the  same  article.  To  combine  them 
thus  is  one  of  the  devices  of  protection.  On  the  whole,  spe¬ 
cific  duties  are  preferable  to  ad  valorem  because  they  give 
less  chance  to  frauds,  and  because  importers,  and  others,  can 
make  their  calculations  easier  on  the  basis  of  them.  To  be 
sure,  this  involves  that  high-priced  grades  of  an  article  pay 
no  higher  tax  than  low-priced  grades  of  the  same ;  but  this 
consideration  is  largely  overbalanced  by  those  of  convenience 
and  productiveness.  So  far  as  is  possible,  taxes  should  be 
levied  upon  commodities  once  for  all,  and  then  an  end.  The 
opposite  principle  of  taxing  commodities  every  time  they 
change  hands  throws  an  indefinite  burden  on  exchange, 
whose  weight  cannot  well  be  calculated  beforehand,  either 
by  the  consumer  or  by  the  government,  through  uncertainty 
as  to  the  number  of  transfers.  Exchanges  indeed  are  the 
only  legitimate  subject  of  taxation,  but  not  every  specific 
and  subordinate  exchange.  An  attempt  to  tax  all  sales  what¬ 
ever  was  followed  in  Spain,  and  will  be  followed  everywhere, 
by  a  sluggish  indisposition  to  trade  at  all.  Let  the  amount 
of  the  tax  be  definite,  and  let  everybody  be  sure  that  when 
it  is  once  paid  government  will  produce  no  further  claim, 
and  industry  will  go  along  under  heavy  taxes  better  than 
under  those  nominally  lighter  to  which  uncertainty  as  to 
time  or  amount  attaches.  All  the  more  advanced  govern¬ 
ments  have  been  simplifying  of  late  years  their  systems  of 
taxation,  and  collecting  their  revenue  at  fewer  points,  and 
under  more  tangible  conditions,  in  order  to  interfere  as  little 
as  possible  with  a  free  industry  and  free  exchange.  Eng¬ 
land,  for  instance,  has  given  up  a  great  variety  of  taxes,  and 
now  collects  her  revenue  of  about  £70,000,000  a  year,  from 
customs  £20,000,000,  from  excise  £25,000,000,  from  stamps 
£10,000,000,  from  taxes  (mostly  on  incomes)  £9,000,000, 
and  from  Post  Office  £6,000,000.  The  annual  average  net 
income  from  these  few  sources  has  been  for  many  years 


TAXATION. 


597 


just  about  £64,000,000,  of  which  the  income  tax  yields 

£6,000,000. 

9.  The  bottom-principle  of  taxation  is  this,  relatively  low 
taxes  so  adjusted  on  comparatively  few  things  as  not  to  dis¬ 
turb  natural  prices.  The  principle  is  simple  :  the  problem  is 
difficult ;  but  wonderfully  less  so,  the  moment  all  attempts 
are  given  up  to  foster  any  branch  of  industry  whatever. 
Our  legislators  are  not  called  upon  to  foster  any  industries. 
They  cannot  permanently  do  it,  if  they  try  ;  and  they  do  im¬ 
mense  harm,  while  they  try.  Their  duties  would  be  easier, 
and  better  performed,  if  they  looked  solely  to  the  best  meth¬ 
ods  of  raising  money  in  such  a  way  as  shall  least  interfere 
with  what  would  otherwise  be  the  ongoing  of  exchanges  in 
all  directions.  Duties  that  prevent  importations,  and  the 
consequent  exportation  of  domestic  products  in  return  ;  and 
duties  whose  direct  effect  is  to  raise  the  price  of  other  arti¬ 
cles  than  those  on  which  they  are  levied  ;  are  objectionable, 
and,  for  the  most  part,  can  be  dispensed  with.  In  case 
duties  are  laid  on  articles,  as  spirits,  which  are  also  produced 
at  home,  there  should  be  an  excise  on  the  home  product 
equivalent  to  the  tariff- tax  on  the  foreign,  otherwise  the  peo¬ 
ple  will  pay  more  in  consequence  of  the  tax  than  government 
will  get.  This  subsidiary  principle  is  important,  as  is  also 
the  principle  that  taxes  and  duties  should  be  collected  by  the 
government  in  as  economical  a  manner  as  possible,  that  is  to 
say,  the  money  should  be  kept  out  of  the  pockets  of  the  peo¬ 
ple  as  short  a  time  as  possible,  disbursement  following  quick 
upon  collection.  It  is  poor  policy  to  gather  taxes  at  the 
beginning  of  the  year  which  will  not  be  disbursed  till  the  end 
of  the  year.  Let  the  people  use  their  funds  till  they  are 
wanted  at  the  treasury ;  and  if  the  taxes  do  not  then  come 
in  as  fast  as  wanted,  it  is  better  to  issue  what  are  called  in 
England  exchequer-bills,  and  in  the  United  States  certificates 
of  indebtedness,  to  be  redeemed  at  the  end  of  the  year  from 
the  proceeds  of  the  taxes,  than  to  let  the  people’s  money  lie 
idle  in  the  treasury. 


598 


POLITICAL  ECONOMY. 


10.  If  the  necessities  of  the  State  require  it,  government 
has  the  right  to  demand  from  all  persons  who  are  capable 
of  making  exchanges,  and  who  do  make  them,  something  in 
the  form  of  taxes.  But  it  is  every  way  better,  when  possi¬ 
ble,  that  people  of  very  moderate  means  should  be  exempted 
altogether  from  direct  taxes ;  and  the  payment  of  indirect 
taxes  is  a  matter  more  in  their  own  option,  since  they  are 
at  liberty  to  buy  much  or  little  of  those  commodities  sub¬ 
jected  to  an  indirect  tax.  In  the  State  of  Massachusetts, 
incomes  not  exceeding  $2,000  are  exempted  by  the  law.  If 
a  house-tax  should  be  levied,  all  houses  below  a  certain 
grade  of  style  and  comfort  should  be  exempted,  and  the  tax 
pass  up  by  easy  gradations  from  those  just  taxed  to  the  pala¬ 
tial  residences  of  the  rich.  In  the  present  age  of  the  world, 
the  well-to-do  citizens  of  every  country  are  able  to  bear  with¬ 
out  too  great  difficulty  the  burdens  of  the  government,  and 
nothing  tests  better  the  degree  of  civilization  which  a  nation 
has  reached  than  the  care  and  solicitude  it  displays  for  the 
welfare  of  its  poorer  citizens.  Bismarck  has  recently  acted 
on  this  principle  in  Prussia,  where  there  is  a  graduated  in¬ 
come  tax,  the  lowest  class  of  persons  subject  to  which  must 
have  at  least  an  income  of  420  marks  a  year ;  all  persons 
having  a  less  income  than  that  are  wholly  exempt  from  the 
tax ;  those  having  between  420  and  GG0  marks  a  year  pay 
84  pennies  as  income  tax  ;  persons  in  the  next  higher  class 
pay  1G4  pennies  a  year;  those  in  the  class  whose  maximum 
income  is  G,000  marks  pay  44  marks  and  80  pennies  a 
year ;  and  lately  on  account  of  hard  times,  the  Chancellor 
proposed  that  all  the  classes  included  between  420  and  6,000 
marks  of  income  should  be  wholly  exempted  from  one  quar¬ 
ter’s  taxes. 

11.  At  a  court  ball,  Napoleon  the  First  once  observed  a 
lady  noticeable  as  rich'y  dressed  and  as  wearing  splendid  dia¬ 
monds,  and  on  asking  her  name,  found  that  she  was  the  wife 
of  a  tobacco  manufacturer  of  Paris  ;  it  occurred  at  once  to  the 
quick  mind  of  the  French  ruler,  that  the  State  might  just 


TAXATION. 


.  599 


as  well  have  those  profits  as  an  individual ;  and  the  sale  of 
tobacco  in  all  its  forms  became  accordingly  a  State  monop¬ 
oly,  which  now  yields  about  400,000,000  francs  a  year. 
That  is  indirect  taxation.  So  is  the  British  and  United 
States  tariff  and  excise  on  tobacco.  This  leads  to  the  ques¬ 
tion,  who  pays  an  indirect  tax?  Can  the  producer  throw  it 
wholly  upon  the  consumer?  Can  the  banks,  for  example, 
throw  their  taxes  wholly  upon  their  customers  ?  Producers 
and  dealers  and  bankers  and  companies  add  the  tax  demand¬ 
ed  from  them,  and  sometimes  more  than  the  tax  under  color 
of  it,  to  the  price  of  their  wares.  But  it  is  not  true  that  they 
can  always  realize  the  whole  of  this  enhanced  price.  Gen¬ 
erally  they  can,  sometimes  they  cannot.  If  the  article  be 
one  of  necessity,  or  a  luxury  that  has  become  equivalent  to  a 
necessity,  and  there  be  no  other  source  of  supply  than  the 
taxed  one,  then,  as  a  rule,  the  tax  falls  wholly  on  the  con¬ 
sumer,  and  is  a  matter  of  indifference  to  the  producer  or 
dealer.  But  the  usual  effect  of  an  enhanced  price  is  to  les¬ 
sen  demand,  and  if  the  article  is  dispensable,  or  its  consump¬ 
tion  can  be  lessened,  or  it  can  be  obtained  elsewhere,  the 
market  will  be  sluggish  under  the  tax,  and  producers  oi 
dealers  will  be  likely  to  tempt  it  by  lowering  prices,  in  othei 
words,  by  sharing  the  tax  with  consumers,  and  paying  that 
share  out  of  profits.  This  is  the  principle.  Producers  and 
dealers  would  rather  the  tax  were  off.  Consumers  generally, 
but  do  not  always,  pay  the  whole  of  it. 

12.  Much  has  been  written,  and  very  little  is  known,  about 
the  tendency  of  taxes  to  diffuse  themselves.  By  this  is 
meant,  that  it  does  not  make  so  much  difference  upon  what 
or  upon  whom  a  tax  is  originally  levied,  because  the  ten¬ 
dency  of  things  is  to  diffuse  it ,  that  is,  to  compel  others  to 
assist  in  paying  the  tax.  The  result  of  much  personal  read¬ 
ing  and  reflection  on  this  point  is  the  conclusion  that  taxes 
do  not  “diffuse  themselves”  nearly  so  much  as  has  been 
sometimes  supposed  ;  and  that,  at  any  rate,  it  is  a  good  deal 
better  to  take  the  taxes  from  those  who  ought  to  pay  them, 


600 


POLITICAL  ECONOMY. 


than  to  lay  them  at  random,  and  then  to  trust  some  unknown 
forces  to  make  them  afterwards  just.  It  is  certain  that  some 
unjust  taxes  cannot  be  diffused ;  for  example,  the  protective 
tariff-taxes  paid  by  the  farmers  upon  articles  of  necessary 
consumption.  These  taxes  have  no  tendency  to  raise  the 
price  of  the  farmers’  produce,  for  that  is  determined  by  the 
foreign  market,  to  which  large  parts  of  the  produce  are  ex¬ 
ported.  For  such  taxes  the  farmers  cannot  reimburse  them¬ 
selves.  Taxes  that  affect  no  prices  are  the  best  of  all ; 
taxes  that  affect  prices  the  least  are  the  next  best ;  and  taxes 
that  are  designed  to  affect  prices  are  the  very  worst. 

A  concise  restatement  of  some  of  the  points  of  this  chap¬ 
ter  will  make  our  last  summary,  and  conclude  the  volume. 

1.  Political  Economy  is  strictly  a  Science ,  while  levying 
taxes  is  an  Art  based  on  economical  truths. 

2.  Much  so-called  taxation  is  designed  to  impede  exchanges 
and  exalt  certain  prices. 

3.  An  abuse  of  the  governmental  right  to  tax  is  the  very 
core  of  wrong-doing. 

4.  The  sole  source  of  riches  and  taxes  is  trade. 

5.  If  a  government  restricts  trade ,  it  dries  up  so  far  forth 
its  own  well-springs. 

6.  Citizens  have  an  inalienable  right  to  know  just  how ,  how 
much ,  what  for ,  and  whether  in  even  proportion  with  others , 
they  pay  taxes. 

7.  Governments  that  deal  fairly  and  openly  and  honestly 
with  their  citizens  in  taxation  will  find  their  account  in  full 
treasuries  and  a  common  good-will. 


INDEX. 


A. 

Abominations  Tariff,  5.' 7. 

Abraham,  5. 

Abstinence,  282. 

Achan,  4. 

Act  of  Parliament,  192 
Advantages  of  credit,  4  50. 

Africa,  325. 

Africanus,  18. 

“  Against  and  in  favor,”  439. 
Agreeableness  of  laboi ,  215. 

Agricultural  school,  45, 

Agriculture,  43,  498. 

Aims  and  ends,  249. 

Albany  Evening  Journal,  499. 

Alexander  the  Great,  327. 

Alley,  John  B.,  505. 

All  bales  School,  72. 

Alsace  and  Lorraine,  34. 

American  flag,  198. 

Ames,  Fisher,  539,  542. 

Amount  of  production,  172. 

Amsterdam,  307. 

Analyses  of  the  cost  of  capital,  307. 
Analyses  of  the  cost  of  labor,  307. 
Analytics,  106. 

Anglophobia,  507. 

Anglo-Saxons,  58. 

“  Annual  produce  of  land  and  labor,”  96. 
Annuities,  426. 

Antoine  de  Montchrestien,  40. 

Antwerp,  58. 

Apple-tree  blossoms,  93. 

Archangel,  60. 

Archbishop  Lanfranc,  25. 

Archbishop  Theodore,  25. 

Archipelago,  8. 

Aristophanes,  351. 

Aristotelian  logic,  94. 

Aristotle,  12,  34,  65,  295. 

Arthur,  President,  514. 

Artificial  high  prices,  526. 

Artisans,  wages  of,  311. 

Asia,  proconsular,  24. 

Assignats,  358,  366. 

Association,  177. 

Athelstane,  King,  25. 

Athens,  9, 16. 

Atkinson,  Edward,  256. 

Axioms  in  reasoning  93. 


B. 

Babylonia,  2. 

Bacon,  50. 

Bacon,  his  method  of  reasoning,  91. 
Bailee,  415. 

Baird,  H.  C.,  518. 

Baker,  illustration  of,  330. 

Balance  of  trade,  478. 

Baldwin  of  Pennsylvania,  551. 

Ball,  John,  224. 

Bancroft,  George,  535. 

Bank  bills,  424. 

Bankers’  bills,  440. 

Bank  of  England,  360,  363,  375,  425. 
Bank  of  Massachusetts,  396. 

Bank  of  New  York,  396. 

Banks,  425. 

Banks  defined,  427. 

Barter,  315,  318. 

Bascom,  Preface,  81, 101, 114. 
Bastiat,  Preface,  53,  98,  131,  285,  334* 
Bayonne,  53. 

Beauty  of  money,  346. 

Beccaria,  73. 

Beck,  Senator,  485. 

Bentham,  Jeremy,  101. 

Benton,  Preface,  537,  550,  562. 
Bessemer  Steel  Company,  485. 
Biddle,  Nicholas,  400. 

Biens,  52, 170. 

Bills  of  exchange,  432. 

Biscuit,  122. 

Bismarck,  598. 

Black  death,  223. 

Blackstone,  128. 

Blades  of  the  shears,  267. 

Blaine,  Secretary,  579. 

Bliss,  Dr.,  106. 

Boccardo,  74,  81. 

Body  in  its  pregnant  sense,  89. 
Bohemia,  390. 

Bois-Guillebert,  44,  62. 

Bolles,  Preface. 

Bonds,  423. 

Book  accounts,  421. 

Book  of  Trades,  33. 

Borrow,  417. 

Boston,  578. 

Bottom-principle  of  taxation,  600. 
Boudinot,  Elias,  392. 


601 


602 


4 


INDEX . 


Bowen,  Preface,  81. 

Bowls,  140. 

Brazil,  134. 

Bricklayers,  499. 

Bright,  John,  298,  495. 

British  bread,  58. 

British  counterfeiters,  385. 
British  hours,  498. 

British  Islands,  293. 

Bronson,  379. 

Bruges,  28. 

Brunswick,  29. 

Buchanan,  President,  373. 
Buckle,  65. 

Bullion,  337. 

Bullion  theory,  23. 
Bundesrath,  75. 

Bunker  Hill,  382. 

Bunting,  489. 

Burchard,  340. 

Burden  of  national  debts,  459. 
Burke  of  South  Carolina,  541. 
Button  factory,  506. 

Buying  and  selling,  1,  487. 


c. 

Caesar,  111,  410. 

Caird,  265. 

Cairns,  72. 

Calhoun,  547,  557,  560. 

Calhoun  Tariff,  545. 

Canal  de  Briare,  39. 

Canfield,  Professor,  85. 

Cape  of  Good  Hope,  31. 

Capital,  47,  203,  206,  248,  251. 

Capital  defined,  252. 

Capitularies,  32. 

Cardinal  Mazarin,  41. 

Carey,  H.  C.,  Preface,  81,  82, 154,  253, 265, 
279,  285,  519. 

Carlyle,  367. 

Carthage,  7. 

Cases  of  value,  127. 

“  Cash  credits,”  418,  448. 

Categories  of  valuable  things,  300. 

Cato,  18,  19. 

Cattle  and  chattels,  252. 

Census,  222,  230,  525. 

Cent,  389. 

Cents  and  pencil,  123. 

Certificates  of  stocks,  423. 

Chaldea,  2. 

Chalmers,  184. 

Chapin,  A.  L.,  81,  85. 

Charlemagne,  29,  32. 

Charles  IX.,  39. 

Charles  O’Connor,  211. 

Charles  the  Bold,  134, 

Charles  V.,  37. 

Chase,  Secretary,  404,  407. 

“  Cheap  goods,”  509. 

Cheap-side,  28. 

Cheque-books,  446. 

Cheques,  442. 

Chevalier,  Preface,  55,  72,  339. 

Cheves,  Langdon,  400. 

Chicago  fire,  527,  570. 


Chief  Justice  Supreme  Court,  208. 
Chinese,  31,  245. 

Chrematisties,  12,  15. 

Christianity,  25. 

Christlieb,  Dr.,  of  Bonn,  26. 

Cicero,  3,  17,  23,  260,  442. 

Circular  letters  of  credit,  447. 
Circulating  capital,  263. 

Circulation,  rapidity  of,  321. 

Classes  of  facts,  90. 

Clay,  Henry,  508,  551. 

Clearing-house,  174,  444. 

Cleon,  351. 

Cleopatra’s  Needle,  199. 

Clients,  22. 

Clyrner  of  Pennsylvania,  541. 

Coasting  trade,  200,  523. 

Code  of  Justinian,  20. 

Coffee,  482. 

Coinage,  international,  354. 

Coins,  4. 

Colbert,  40,  46,  57. 

Cologne,  29. 

Colonies,  78,  377. 

Colwell,  83. 

Commercial  bills,  440. 

Commodatum,  416. 

Commodities,  281,  413. 

Common  labor,  204. 

Common  sense  in  economics,  463. 
Communes,  33. 

Communism,  54. 

Company  of  the  Indies,  366. 

“  Compete,”  472. 

Compromise  Tariff,  560. 

Conciliation  with  America,  504. 
Condillac,  Preface,  51,  63,  150. 
Conditions  of  production,  177. 

Congress  of  German  economists,  75. 
Connecticut,  381,  382,  389. 

Conrad,  77. 

Consols,  424. 

Constancy  of  labor,  217. 

Constantinople,  24,  29. 

Constitution,  United  States,  78,  370,  461. 
Consumption,  167. 

Continental  Congress,  382,  535. 
Co-operation,  245. 

Copper,  272. 

Copyrights,  194. 

Cordova,  27. 

“  Corners,”  162. 

Corn-laws,  291. 

Cornwall,  9,  59. 

Cossa,  74. 

Cost  of  capital,  304. 

Cost  of  carriage,  475. 

Cost  of  labor,  304. 

Cost  of  production,  300. 

Cotton,  59. 

Cotton  ties,  507. 

Cottons  and  silks,  405. 

Cowry  shells,  326. 

Credit,  97. 

Credit-claims,  125. 

Credit  fonder ,  56. 

Cremona,  207. 

Crcesus,  279. 

Crossed  cheques,  446. 


INDEX. 


603 


Crusades,  30,  31. 

Crusoe,  Robinson,  .  08,  584. 
Currey,  M.  S.,  507. 

Custom,  220. 

Customs  revenue,  5  )2. 
Cycle  of  labor,  244. 

Cyrus,  the  younger,  9. 


D. 

Dallas,  Secretary,  399,  545 
Damascus,  5. 

Damask,  30. 

Dana,  C.  A.,  Preface. 

Dantzic,  29. 

Dawes,  Senator,  532. 

Debt,  334. 

Decimal  system,  3. 

Decimetre,  395. 

Deduction,  91,  101. 

Demand  and  supply,  158,  214. 
Democrats,  532. 

Denarius,  18. 

Denomination  dollar,  331. 
Deposits,  430. 

Descartes,  92. 

Desires,  124,  133. 

Dessong,  200. 

Diffusion  of  taxes,  599. 

Digest,  The  Roman,  20. 

Diman,  Professor,  84. 

Dimes  and  dollars,  389. 
Diminishing  returns,  286. 

Direct  and  indirect  taxes,  589. 
Director  of  the  mint,  348. 
Disadvantages  of  credit,  455. 
Discounts,  429. 

Diversity  of  advantage,  175,  467, 
Divisibility  of  money,  347. 
Division  of  labor,  186,  189. 
Doctrine  of  rent,  290. 

Doge  of  Venice,  31,  34. 

Dollar,  333,  390. 

Dollar-bill,  357. 

Domes-day  book,  297. 
Dorsetshire  laborer,  222. 

Double  standard,  335,  394. 

Duke  of  Northumberland,  297. 
Duke  of  Orleans,  365. 

Dunbar,  Professor,  84. 
Duodecimal  system,  3. 

Durable  machinery,  311. 

Dutch  capital,  308. 

Dutch  goods,  43. 

Duties  and  taxes,  595. 

Duties  on  imports,  16. 

Duty,  108. 

Duty  on  wool,  511. 


E. 

Easiness  of  labor,  216. 
Easterlings,  30. 

East  India  Company,  193. 
East  Indies,  325. 
Economics,  12,  94. 

Edict  of  Nantes,  37. 


Efforts,  124,  133. 

Egibi  &  Co.,  442. 

Elder,  William,  82,  83. 

Eliot,  historian,  540. 

Elizabeth,  Queen,  58,  192. 
Elliot,  E.  B.,  81,  355. 

English  re-coinage,  352. 
English  taxes,  596. 

Ephron,  5. 

Eryxias,  15. 

Ethical  science,  108. 

Ethics,  12,  94. 

Etymology  of  credit,  414. 
Euphrates,  2. 

Euripides,  234. 

Evarts,  Secretary,  104,  200,  579. 
Exact  sciences,  94. 

Exchange,  120. 

“  Exchange,”  434. 

Exchanges  proper,  581. 
Exchequer,  361. 

Exchequer  bills,  598. 
Experiments  in  taxation,  591. 


F. 

Fallacies  of  protection,  487. 
Fallacy  of  composition,  499. 
Faneuil  Hall,  462. 

Fashion,  220. 

Fawcett,  Professor,  222. 

Fee  simple,  293. 

Feigned  cases,  103. 

Fenelon,  56. 

Ferrara,  74. 

Feudalism,  25,  27. 

Field,  Judge,  408. 

First  class  of  employers,  226. 
Flanders,  25. 

Flax  fabrics,  261. 

Florence,  31. 

Flour  product,  117. 

Flour  war,  49. 

Fluency  of  money,  341. 

Foot,  3. 

Foote  of  Vermont,  551. 

Foreign  bills  of  exchange,  435. 
Foreign  trade,  its  principles,  476. 
.Forms  of  capital,  263. 

France,  25,  56. 

France  and  England,  296. 

Francs,  359. 

Franklin,  92,  295,  380. 

“Free  banking  system,”  401 
“  Free  breakfast-table,”  570. 
Freedom,  179. 

Freeholds,  295. 

Free  list,  511. 

Free  trade,  493,  500. 
French-Canadian  laborers,  228. 
French  revolution,  362. 

French  seigniorage,  346. 

French  silver,  335. 

French  wine,  296. 

Frere,  Sir  Bartle,  353. 

Fruitage  of  protection,  522. 
Frye,  Senator,  488. 

Funds,  423. 


604 


INDEX. 


G. 

Galileans,  506. 

Gallatin,  Secretary,  80. 

Gambling,  454. 

Garfield,  President,  Preface,  80,  479. 
Generalization,  92. 

Genoa,  30,  73. 

Genovesi,  73. 

Gentiles,  27. 

George,  Henry,  86,  274,  282. 

Georgia  mill-owner,  305. 

German  coinage,  349. 

German  mark,  355,  389. 

Ghent  and  Liege,  28. 

Gibbon,  193,  528. 

Gladstone,  283,  289,  294,  508. 

Glass  in  Berkshire  County,  490,  520. 
Gloves  and  hats,  183. 

Glut  of  products,  184. 

God’s  bounty,  278. 

Gold  certificates,  411. 

Golden  fleece,  28. 

Goodhue  of  Massachusetts,  539. 
Goose  and  gander,  373. 

Gorringe,  Commander,  199. 

Gournay,  46. 

Govan  of  South  Carolina,  555. 
Government,  111,  581. 

Government  remedy,  233. 
Grain-dealer,  an  illustration,  415. 
Grams,  395. 

Granada,  27. 

Grand  divisions  of  time,  417. 

Grand  Trunk  Railway,  516. 

Greeks,  3,  7,  8,  15. 

Greeley,  Horace,  83. 

Greenbacks,  409. 

Green’s  History  of  England,  583. 
Gresham,  Thomas,  59. 

Gresham’s  law,  351,  368,  378,  392,  406. 
Grote,  16. 

Grounds  of  money  steadiness,  337. 
Grounds  of  production,  174. 

Guilds  of  the  middle  ages,  221. 


H. 

Hamburg,  29. 

Kami' ton,  80,  388,  396,  426. 
Hamilton  Tariff,  544. 
Hanseatic  League,  30. 

Hanse  towns,  29. 

Harbor  bill,  514. 

Hargreaves,  59. 

Harmony  Mills,  499. 

Harris,  Edward,  497,  511. 
Hartley  of  Pennsylvania,  537. 
Hawkins,  John,  59. 

Hayne,  Senator,  461. 

Hemp  and  whiskey,  552. 
Henry  IV.,  40. 

Hercules,  pillars  of,  7. 
Herodotus,  7,  327. 

Heth,  sons  of,  5. 

High  cost  of  labor,  305. 
Hildreth,  historian,  Pr^foo*. 


Hipparchus,  3. 

Hiram,  King  of  Tyre,  315. 

Historical  chapter,  use  of,  2. 
Holland,  44. 

“Home  market,”  505,  525. 

Homer,  8,  325. 

Homer,  Sidney,  458. 

Huguenots,  37. 

Hull,  John,  379. 

Hume,  62. 

Huns,  31. 

Husbandry,  three-field,  58. 
Huskisson,  478. 

Hutchinson,  Thomas,  381. 

I. 

Ideal  dollar,  357. 

Illinois,  173. 

Impressibility  of  money,  348. 
Improvements  in  agriculture,  287. 
Improvements  in  machinery,  473. 
Income  tax,  586. 

Increase  of  capital,  269. 
“Indestructible  powers  of  the  soil,” 
Indirect  taxation,  589,  599. 
Induction,  91,  126. 

Inexorable  laws,  196. 
inferior  money,  249. 

Institutes  of  Justinian,  20. 
International  demand,  470. 

Intrinsic,  148. 

Introspection,  102. 

Invention,  178. 

Invention  of  money,  317. 

Ireland,  297. 

Irish  Land  Act,  237,  283,  294. 

Isle  of  Wight,  9. 

Isocrates,  442. 

Italian  farmers,  19. 

Italy,  20,  24,  73. 

J. 

Jackson,  Andrew,  400,  560. 

Jacob,  5. 

Jacobites,  361. 

Jamaica  rum,  539. 

James  II.,  361. 

Jay,  385. 

Jefferson,  65,  381,  389. 

Jevons,  132,  302,  339. 

Jews,  5,  26,  370,  442. 

Joachimsthal,  390. 

Job,  book  of,  6. 

Jones  of  Georgia,  563. 

Journeyman,  143. 

Journeymen  hatters,  503. 

Jute,  507. 

K. 

Kelley  ot  Pennsylvania,  83,  570,  575. 
Kellogg,  132. 

Kenner  of  Louisiana,  574. 

Key  of  Maryland,  392. 

Kiehl,  112. 


INDEX. 


605 


Kinds  of  mont  v,  412. 

Kirkcaldy,  64. 

Knight’s  History  of  England,  479. 
Knit-goods  bill,  483,  514. 

Knives,  illustration  of,  302. 

Knox,  396. 

Knox,  Comptroller,  406,  409,  430,  432. 


L. 

Labor,  203. 

Labor  combinations,  240. 

Labor  defined,  204. 

Labor-takers,  210. 

Labor  troubles,  232. 

Laissez  faire,  197. 

Lake  Superior,  520. 

Lancashire,  298. 

Land,  274. 

Land  as  a  physical  thing,  276. 

Land  in  Great  Britain,  686. 
Languedoc,  32. 

Lapoint,  Alfred,  529. 

Latin  union,  336,  395. 

Law,  John,  46,  364,  380. 

Lawrence  of  New  York,  540. 
Lead-pencils,  120. 

Leadville,  220. 

Legal  restrictions,  221. 

Legal  tender,  407. 

Leslie,  Cliffe,  70. 

Lesser  arts,  32. 

Le  Trosne,  48. 

Libra,  Latin,  322. 

Limits  of  value,  469. 

Lincoln,  President,  405. 

Lind,  Jenny,  213. 

Livermore  of  New  Hampshire,  555. 
Loan,  416. 

Lobbying,  576. 

Locke,  61,  353. 

Lombards,  442. 

London,  28. 

London  clearing-house,  444. 
Longland,  William,  224. 

Lord  North,  504. 

Louis  XIV.,  40. 

Louis  XV.,  49. 

Lowell  and  Jackson,  545. 

Lucca,  31. 

Lucius  Paulus,  18. 

Lydians,  9. 


M.' 

Macaulay,  25,  352,  361. 

Macedonia,  23. 

Machinery,  188,  309. 

Machpelah,  cave  of,  316,  346. 

Maclcod,  H.  D.,  Preface,  21,  71,  85,  98, 
106,  113,  131,  253,  259,  333,  414,  426. 
Macoute ,  327. 

Madison,  536. 

Magna  Charta,  26,  370,  584. 

Malesherbes,  50. 

Malthusianism,  238,  518. 

Mandats ,  367. 


Mans,  34. 

Manufactures,  natural,  501. 

Marchands  d'eau ,  33. 

Market  for  products,  185. 

Markets,  493. 

Market  value,  158. 

Mars,  Mercury,  17. 

Martin,  Henri,  41,  62. 

Martin,  L.  G.,  530. 

Massachusetts,  102, 173,  379,  594. 

Master,  143. 

Matter,  169. 

McCulloch,  Preface,  144. 

McCullock,  Secretary,  80,  403,  529. 
McDuffie,  557. 

Measure  of  services,  329. 

Mehlig,  132. 

Mehring,  76. 

Meissonier,  211. 

Mercantile  system,  35,  38,  42. 
Merchant-Gild,  28. 

Mercier  de  la  Rivibre,  48. 

Metaphysics,  94,  105. 

Methods  of  protection,  487. 

Metropolitan  museum,  442. 

Mexican  dollar,  391. 

Middle  age,  24,  26,  370. 

Milan,  32,  34,  73. 

Mileage  of  railroads,  257. 

Mill,  J.  S.,  Preface,  71,  81,  94,  97, 137,  590 
Milled  dollars,  358,  383. 

Millennium,  512. 

Mina,  4. 

Minimums,  558. 

Mining,  old  modes  of,  6. 

Minneapolis,  117. 

Mint,  390. 

Mirabeau,  49,  367. 

Mobility  of  laborers,  221. 

Molasses,  539. 

Mommsen,  16. 

Monetary  conference,  104. 

Money,  35,  153,  314. 

Money  a  medium,  320. 

Money  defined,  328. 

Money  portable,  319,  346. 

Monopolies,  190. 

Montague,  353. 

Montesquieu,  327. 

Moody,  the  mechanic,  545. 

Moon,  changes  of,  3. 

Moore,  J.  S.,  486. 

Moors,  27,  480. 

Moral  science,  107. 

Morrill  Tariff,  567,  572,  577 
Morris,  Gouverneur,  388. 

Morris,  Robert,  387. 

Mortgages,  422,  593. 

Moses,  law  of,  369. 

Motion  in  production,  205. 

Murillo,  161. 

Mutual  purchase,  131. 

Mutuum ,  416. 


N. 


Nails,  326. 

Nancy,  134. 
Napoleon,  191,  593. 


606 


INDEX. 


National  debts,  457. 

Nation  in  taxes,  593. 

Nation,  the,  Preface. 

Natural  agents,  203. 

Natural  value,  301,  302. 
Navigation  acts,  508,  534. 
Negro  suffering,  17. 

Net  product,  47,  52. 

Nevada,  349. 

Newburg,  384. 

New  Hampshire,  284. 

New  Haven,  389. 

New  Orleans,  366. 

Newton,  353. 

New  York  clearing-house,  444. 
New  York  Public,  457. 

Nicole  Oresme,  35. 

Nineveh, 2. 

Nogorod,  29. 

Nominal  wages,  305. 
Nottinghamshire  laborers,  229. 

o. 

Obelisk,  199. 

Obstacles,  180. 

Occident  and  Orient,  353. 
Ouyssey,  8. 

Old  machinery,  303. 

Onondaga  Salt  Company,  518 
Ores,  123. 

Orient,  the,  2. 

Origin  of  capital,  254. 

Origin  of  “  protection,”  477. 
Oscillations  of  demand,  344. 
Ought,  107. 

Ought-quality,  90. 

Oxen,  8. 

Oxford,  28,  64. 


P. 

Paganini,  208. 

Paley,  107. 

Paper  money,  358. 

Par  of  exchange,  430,  438. 
Pasion,  442. 

Patent  rights,  194. 

Patrons,  22. 

Peasant  revolt,  224. 
Peculiarity  of  credit,  413. 
Pecunici,  325. 

Peel,  Sir  Robert,  529,  563. 
Persia,  12. 

Persians,  7. 

Persons,  115. 

Persons  and  things,  163,  266. 
Persons  in  credit,  414. 
Pheidon,  9,  325. 

Phillippe  le  Bel,  36. 

Philpott,  Preface,  573. 
Phoenicians,  7. 

Physical  sciences,  94. 
Physiocrats,  49,  274,  .  35. 

Pig  iron,  173. 

Pine-tree  coinage,  379. 
Pin-making,  187. 

Pioneers,  2. 


Pitt,  William,  67.  • 

“Plant,”  264. 

Plate,  339. 

Plato,  10. 

Pliny,  20. 

Political  economy,  114. 

Politics,  12. 

Porter,  R.  P.,  575. 

Post  hoc  ergo  propter  hoc,  100,  491,  51®. 
Post-office,  596. 

Pottery  wares,  576. 

Pound,  3. 

Power ,  206. 

Powers  and  wants,  111. 

Prejudice,  220. 

Price,  151. 

Price,  Bonamy,  68,  333,  419. 

Prince  Leopold,  69. 

Principles  of  taxation,  585. 

Printing  paper,  506. 

Procullus,  150. 

Produce,  292. 

Production,  165. 

Professional  labor,  204. 

Profits  defined,  253,  260. 

Promise  dollar,  357. 

Promissory  notes,  422. 

Property,  99-108. 

“  Protection,”  23,  43,  476. 

Protective  system,  43. 

Protective  tariff,  482. 

Provence,  32,  37. 

Prudhon,  53. 

Prussia,  74. 

Publicity  in  taxes,  588. 

Public  opinion,  236,  514. 

Pumpelly,  264. 


Q. 

Quaker  City,  392. 
Quantity  of  money,  323. 
Queen  Elizabeth,  352. 
Quesnay,  45,  85. 

Quid  pro  quo,  120. 
Quinine,  571. 

Quint,  389. 

R. 


Rae,  John,  81. 

Railroads,  256. 

Railroad  ticket,  320. 

Randolph,  John,  399,  547. 
Rates  of  j>rohts,  309. 

Rau,  76. 

Raymond,  Daniel,  81. 

Release  is  payment,  451. 

Rent  of  lands,  288. 
Republicans,  532. 

Revenue  tariff,  481. 

Rhode  Island,  378,  381,  402. 
Ricardo,  Preface,  144,  285,  518. 
Pichesse,  52,  170. 

Ripley,  George,  Preface. 
Roach,  John,  94,  504. 
Robertson  of  Louisiana,  551. 

|  Robespierre,  368. 


INDEX . 


607 


Roman  law,  420. 

Romans,  16. 

Roscher,  35,  77. 

Rowley  in  Massachusetts,  503. 
Ruggles,  S.  B.,  104,  395. 


s. 

Sabinus  and  Cassius,  149. 

Salable  land,  280. 

Sales,  96. 

Sanci  diamond,  134. 

Sartain,  John,  211. 

Satisfactions,  124. 

Savings  banks,  247. 

Say,  jean-Baptiste,  52,  112,  184. 

Say,  Leon,  66. 

Scarcity,  510. 

Schouler,  historian,  538. 

Science  defined,  89. 

Sciences  .as  classified.  93. 

Sciences,  growth  of,  1. 

Scotch  banks,  425,  448. 

Seigniorage,  346. 

Self-checks  in  money,  344. 

Self-interest,  271. 

Sempronian  law,  24. 

Senior,  Preface,  168, 191. 

Service  for  service,  134. 

Services,  129. 

Services  of  three  kinds,  413. 

Seymour,  Governor,  579. 

Shakspeare,  35,  518. 

Shays  Rebellion,  385. 

Sheffield,  59. 

Sherman,  Secretary,  80,  485,  507,  577. 
Ship-building,  522. 

Shipping  in  United  States,  197. 

Sicily,  19,  24. 

Siddons,  132. 

Silk  culture,  37. 

Silks  and  cottons,  466. 

Silver  certificates,  416. 

Sismondi,  112. 

Skilled  labor,  204. 

Slavery,  24. 

Smith,  Adam,  Preface,  63,  137,  187,  375, 
478. 

Smith,  Peshine,  83. 

Socialism,  55. 

Society,  109,  581. 

Socrates,  10. 

Solomon,  315,  346. 

Somers,  353. 

Soult,  Marshal,  161. 

Source  of  taxes,  581. 

Spaulding,  E.  G.,  514. 

Spelling-book,  138. 

Spencer,  Herbert,  452. 

Spinner,  treasurer,  565. 

“  Springfield  Republican,”  516. 

Stamp  Act,  534. 

Standard  of  comparison,  330. 

Stars  and  stripes,  523. 

States  in  taxation,  593. 

St.  Clair,  Gen.,  543. 

Steam-engine,  196. 

Stein,  76. 


St.  Louis  of  France,  27,  33. 

Stocks,  423. 

Strawberries,  141. 

Strikes,  240,  495. 

Sturtevant,  Professor,  81,  85. 
Subjugation  of  land,  277. 

Subsidiary  silver  coins,  406. 
Sub-treasury,  401. 

“  Suffocation,”  398. 

Sully,  38. 

Sumner,  W.  G.,  Preface,  84,  578. 
Supreme  Court  of  United  States,  407. 
Surgeon,  301. 

Swift,  Dean,  579. 

T. 

Tailor  and  blacksmith,  177,  464. 
Talleyrand,  367. 

Taney,  Chief  Justice,  400. 

Tannery,  503. 

“  Tariff  commission,”  573. 

Tariff,  origin  of,  480. 

Tariff  Resolutions  of  1858,  566. 

Tariff  taxes,  494. 

Taxation,  315,  581. 

Taxes  and  prices,  600. 

Taxes  on  expenditure,  590. 

Tea  and  coffee,  484,  512. 

Telfair  of  Georgia,  548. 

Terence,  166. 

Thing-dollar,  331. 

Thompson,  Professor,  504. 

Thornly,  James,  496. 

Tigris,  2. 

Tin  Islands,  9. 

Tobacco,  599. 

Tooke’s  History  of  Prices,  162. 
Tours,  27,  37. 

Tripoli,  30. 

Troughton’s  inch,  333. 

Trust  affects  wages,  218. 

Trustee,  415. 

Tubal-Cain,  255. 

Tucker  of  South  Carolina,  541. 
Turgot,  49,  259. 

Turkish  corn,  30. 

Tyre,  city  of,  5,  30. 

u. 

Ulpian,  20,  99,  127,  417. 

Ulster,  59. 

Uncertainty  in  credits,  455. 

United  States  Bank,  397. 

Unit  of  labor,  227. 

Ure,  Dr.,  312. 

Ustariz,  40. 

Usury  laws,  100,  102,  369. 

Utility  and  value,  15. 

Y. 

Value,  113. 

Value  and  utility,  54, 143,  146. 

Value  defined,  126. 

Van  Buren,  401. 

Vauban,  45. 


4 


608 


INDEX. 


Venezuela,  571. 

Venice,  36,  73. 

Verification,  92. 

Vermont,  389,  402. 

Verplanck  of  New  York,  560. 
Versailles,  46. 

Virginia,  504. 

Virginia  tobacco,  319. 
Voluntary  associations,  221. 


w. 

"Wages,  311. 

“  Wages-class,”  208. 

Wages-payers,  210. 

Wages-portion,  233. 

Walker,  Amasa,  Preface,  81. 

Walker,  F.  A.,  Preface,  80,  81,  169,  228, 
333. 

Walker,  J.  EL,  418. 

Walker,  Secretary,  80. 

Walker  Tariff,  563. 

Wallace,  462. 

Wampum,  378. 

Wants  and  powers,  110. 

Washington,  386,  396. 

Watered  stock,  511. 

Water  from  the  spring,  155. 

Water-wheel,  181. 

Wayland,  Preface,  81,  85. 

Ways  and  Means  Committee,  479,  515, 521, 
572. 

“  Wealth  of  Nations,”  375. 

Webster,  Daniel,  213,  461,  608,  563,  657, 
578. 


Webster,  Noah,  385. 
Weights,  4. 

Wells,  D.  A.,  80. 

Whately,  Preface,  71, 112. 
Wheel  of  exchange,  322. 
Whig  Tariff,  563. 

White,  Horace,  403. 

Wife,  181. 

“  Wild-cat  banking,”  398. 
William  and  Mary,  353,  478. 
William  the  Conqueror,  28. 
Willoughby,  Sir  Hugh,  60. 
Winthrop,  Gov.,  503. 
Wolowski,  35,  55. 

Wolsey,  84. 

Woollen  blankets,  486. 
Worsted,  59. 

Wright,  Carroll  D.,  244,  496. 
Wright,  Senator,  562. 

X. 

Xenophon,  9. 

Y. 


York  shilling,  390. 

Young,  Edward,  490. 

Young  pretender,  362. 

z. 

0 

Zeal  of  absolute  ownership,  294 
Zollverein,  74. 

Zulus,  526. 


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